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Imported Materials Prices, Wage Policy, and Macro-economic Stabilization

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  • Richard C. Marston
  • Stephen J. Turnovsky

Abstract

This paper analyzes two simple wage rules that keep employment constant when there are shocks to the prices of imported materials. One rule ties nominal wages to the GNP deflator rather than the consumer price index. The second rule, followed by Japan after the second oil price shock, ties the real wage to real GNP. The paper shows the effects on output, real income, and other macroeconomic variables of choosing either rule in place of the real wage stability provided by conventional wage indexation.
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Suggested Citation

  • Richard C. Marston & Stephen J. Turnovsky, 1985. "Imported Materials Prices, Wage Policy, and Macro-economic Stabilization," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 273-284, May.
    • Handle: RePEc:cje:issued:v:18:y:1985:i:2:p:273-84
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    Cited by:

    1. Richard C. Marston, 1990. "Systematic Movements in Real Exchange Rates in the G-5: Evidence on theIntegration of Internal and External Markets," NBER Working Papers 3332, National Bureau of Economic Research, Inc.
    2. William H. Branson, 1986. "Stabilization, Stagflation, and Investment Incentives: The Case of Kenya, 1979-1980," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 267-294, National Bureau of Economic Research, Inc.
    3. Guender, Alfred V. & Tam, Julie, 2004. "On the performance of nominal income targeting as a strategy for monetary policy in a small open economy," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 143-163, March.
    4. Kieran P. Donaghy, 1998. "Incomes Policies Revisited," Working Papers 46, Sapienza University of Rome, CIDEI.
    5. Joshua Aizenman, 1991. "Foreign Direct Investment, Productive Capacity and Exchange Rate Regimes," NBER Working Papers 3767, National Bureau of Economic Research, Inc.
    6. Ramon Moreno, 1999. "Depreciation and recessions in East Asia," Economic Review, Federal Reserve Bank of San Francisco, pages 27-40.
    7. Prywes, Menahem, 1989. "Linking wages to changing output prices : an empirical study of 13 industrial countries," Policy Research Working Paper Series 187, The World Bank.
    8. Han, Han Soo, 1990. "The theoretical input-output system with flexible technological coefficients based on the two-stage level CES-type production function," ISU General Staff Papers 1990010108000010500, Iowa State University, Department of Economics.
    9. Mr. Joshua Aizenman, 1992. "Exchange Rate Flexibility, Volatility and the Patterns of Domestic and Foreign Direct Investment," IMF Working Papers 1992/020, International Monetary Fund.
    10. Richard C. Marston, 1986. "Real Exchange Rates and Productivity Growth in the United States and Japan," NBER Working Papers 1922, National Bureau of Economic Research, Inc.

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