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Staggered wages, inflation, and discounting

Author

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  • Bonini, Patricia
  • Da Silva, Sergio

Abstract

In the literature of staggered wages (Taylor, 1979, 1980; Blanchard, 1986; Ball and Cecchetti, 1991) the discount factor is neglected in the workers’ loss function. Yet discounting is to be viewed as an extra piece of micro-foundation with implications for discretionary monetary policy. We revisit the issue and show that discounting in the model of staggered wages actually lowers the time consistent steady inflation.

Suggested Citation

  • Bonini, Patricia & Da Silva, Sergio, 2007. "Staggered wages, inflation, and discounting," MPRA Paper 1979, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:1979
    as

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    File URL: https://mpra.ub.uni-muenchen.de/1979/1/MPRA_paper_1979.pdf
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    References listed on IDEAS

    as
    1. Olivier J. Blanchard, 1986. "The Wage Price Spiral," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 543-565.
    2. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    3. repec:nbr:nberre:0126 is not listed on IDEAS
    4. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    5. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    7. Ball, Laurence & Cecchetti, Stephen G, 1991. "Wage Indexation and Discretionary Monetary Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1310-1319, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Staggered wage model; Time consistent steady inflation; Discounting;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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