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The Impact of Reference Norms on Inflation Persistence When Wages are Staggered

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Author Info
Markus Knell (Oesterreichische Nationalbank, Economic Studies Division, P.O. Box 61, A-1010 Vienna,)
Alfred Stiglbauer (Oesterreichische Nationalbank, Economic Analysis Division, P.O. Box 61, A-1010 Vienna,)

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Abstract

In this paper we present an extension of the Taylor model with staggered wages in which wage-setting is also influenced by reference norms (i.e. by benchmark wages). We show that reference norms can considerably increase the persistence of inflation and the extent of real wage rigidity but that these effects depend on the definition of reference norms (e.g. how backward-looking they are) and on whether the importance of norms differs between sectors. Using data on collectively bargained wages in Austria from 1980 to 2006 we show that wage-setting is strongly influenced by reference norms, that the wages of other sectors seem to matter more than own past wages and that there is a clear indication for the existence of wage leadership (i.e. asymmetries in reference norms).

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Publisher Info
Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 153.

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Length: 63 pages
Date of creation: 11 Mar 2009
Date of revision:
Handle: RePEc:onb:oenbwp:153

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Postal: P.O. Box 61, A-1011 Vienna, Austria
Phone: +43/1/404 20 7205
Fax: +43/1/404 20 7299
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Web page: http://www.oenb.at/
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Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
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For technical questions regarding this item, or to correct its listing, contact: (Markus Knell and Helmut Stix).

Related research
Keywords: Inflation Persistence; Real Wage Rigidity; Staggered Contracts; Wage Leadership.;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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