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Wage Flexibility and Openness

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Author Info
Joshua Aizenman

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Abstract

This paper analyzes the degree of short-run, real wage flexibility in a two-sector economy under floating rates. This is done by deriving optimal wage indexation in a contracting framework. We find that the more closed the economy, the lower the degree of wage indexation. As a result, output will fluctuate less around its desired level in a more closed economy. These findings further imply that a given unexpected monetary shock will cause as maller output shock in a more open economy, whereas a given real shock will induce a smaller output shock in a more closed economy.

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Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1108.

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Date of creation: Mar 1986
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Publication status: published as Aizenman, Joshua. "Wage Flexibility and Opnness." Quarterly Journal of Economics, Vol. 100, (1985), pp. 539-550.
Handle: RePEc:nbr:nberwo:1108

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April. [Downloadable!] (restricted)
  2. Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-77, September. [Downloadable!] (restricted)
  3. Frenkel, Jacob A. & Aizenman, Joshua, 1982. "Aspects of the optimal management of exchange rates," Journal of International Economics, Elsevier, vol. 13(3-4), pages 231-256, November. [Downloadable!] (restricted)
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  4. Richard C. Marston, 1982. "Wages, Relative Prices, and the Choice between Fixed and Flexible Exchange Rates," NBER Working Papers 0793, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Flood, Robert P & Marion, Nancy Peregrim, 1982. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 43-66, February. [Downloadable!] (restricted)
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  6. Rudiger Dornbusch, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," NBER Working Papers 0779, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Joshua Aizenman & Marcelo Selowsky, 1987. "Costly Adjustment and Limited Borrowing: A Welfare Analysis of Policiesto Achieve External Balance," NBER Working Papers 2315, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. JOSHUA AIZENMAN & Marcelo Selowsky, 1991. "Costly Adjustment And Limited Borrowing," International Economic Journal, Korean International Economic Association, vol. 5(2), pages 17-38, June. [Downloadable!] (restricted)
  3. Joshua Aizenman & Jacob A. Frenkel, 1985. "Optimal Wage Indexation, Foreign-Exchange Intervention and Monetary Policy," NBER Working Papers 1329, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Joshua Aizenman, 1985. "Openness, Relative Prices and Macro Policies," NBER Working Papers 1233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Oscar Landerretche & Fernado Lefort & Rodrigo Valdés, 1998. "Causas y Consecuencias de la Indización: Una Revisión de la Literatura," Working Papers Central Bank of Chile 30, Central Bank of Chile. [Downloadable!]
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