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Policy rule evaluation by contract-makers: 100 years of wage contract length in Sweden

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Author Info

  • Klas Fregert
  • Lars Jonung

Abstract

The length of collective wage agreements in Sweden between 1908 and 2005 is explored to evaluate a variety of policy regimes from the wage contract-makers' perspective. Adopting a new long-run test, it is found that wage contract length decreases in response to an increase in â€macroeconomic uncertainty†across policy regimes. There is also substantial short-run variation in contract length, which cautions against regime divisions based solely on the policy rule. The inflation targeting regime 1995-2005 stands out as an exceptionally stable policy regime as judged by the willingness of contract-makers to repeatedly commit to three-year non-indexed wage agreements. The results are based on a data base on collective wage agreements unique in international comparisons in terms of length and coverage.

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 270.

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Length: 34 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:euf:ecopap:0270

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Related research

Keywords: Policy regime; contract length; wage indexation; Lucas critique; Sweden; credibility; inflation targeting; Fregert; Jonung;

References

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  1. Berg, Claes & Jonung, Lars, 1999. "Pioneering price level targeting: The Swedish experience 1931-1937," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 525-551, June.
  2. Robert Rich & Joe Tracy, 2000. "Uncertainty and labor contract durations," Staff Reports 106, Federal Reserve Bank of New York.
  3. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  4. Jonung, Lars, 1979. "Knut wicksell's norm of price stabilization and Swedish monetary policy in the 1930's," Journal of Monetary Economics, Elsevier, vol. 5(4), pages 459-496, October.
  5. Stanley Fischer, 1986. "Contracts, Credibility, and Disinflation," NBER Working Papers 1339, National Bureau of Economic Research, Inc.
  6. McCallum, John, 1983. "Stabilization Policy and Endogenous Wage Stickiness," American Economic Review, American Economic Association, vol. 73(3), pages 414-19, June.
  7. Murphy, Kevin J., 2000. "What effect does uncertainty have on the length of labor contracts?," Labour Economics, Elsevier, vol. 7(2), pages 181-201, March.
  8. Danziger, Leif, 1988. "Real Shocks, Efficient Risk Sharing, and the Duration of Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 435-40, May.
  9. Groth, Charlotta & Johansson, Åsa, 2002. "Bargaining Structure and Nominal Wage Flexibility," Seminar Papers 709, Stockholm University, Institute for International Economic Studies.
  10. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234 Elsevier.
  11. Fethke, Gary C & Policano, Andrew J, 1981. "Cooperative Responses by Public and Private Agents to Aggregate Demand and Supply Disturbances," Economica, London School of Economics and Political Science, vol. 48(190), pages 155-71, May.
  12. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December.
  13. Christofides, L. & Peng, C., 2004. "Contract Duration and Indexation in a Period of Real and Nominal Uncertainty," Working Papers 2004-3, University of Guelph, Department of Economics and Finance.
  14. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October.
  15. David Longworth, 2002. "Inflation and the Macroeconomy: Changes from the 1980s to the 1990s," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 3-18.
  16. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
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Citations

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Cited by:
  1. Robert Amano & Tom Carter & Kevin Moran, 2012. "Inflation and Growth: A New Keynesian Perspective," Working Papers 12-23, Bank of Canada.
  2. Amano, Robert & Moran, Kevin & Murchison, Stephen & Rennison, Andrew, 2009. "Trend inflation, wage and price rigidities, and productivity growth," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 353-364, April.

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