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What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?

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  • Seamus Hogan

Abstract

A recent paper has suggested a reason why there might be a lasting trade-off between inflation and unemployment at low inflation rates. This has led some economists to recommend that Canada increase its inflation rate. The idea underlying this view is that, because firms are reluctant to cut workers' nominal wages, a moderate amount of inflation can be used to facilitate needed reductions in real wages. This paper discusses the link from downward nominal-wage rigidity to unemployment, and considers some of the issues that need to be addressed in order to determine whether a change in Canada's monetary policy is warranted.

Suggested Citation

  • Seamus Hogan, 1998. "What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?," Canadian Public Policy, University of Toronto Press, vol. 24(4), pages 513-525, December.
  • Handle: RePEc:cpp:issued:v:24:y:1998:i:4:p:513-525
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    Cited by:

    1. Özer Karagedikli & Kirdan Lees, 2004. "Do inflation targeting central banks behave asymmetrically? Evidence from Australia and New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP 2004/02, Reserve Bank of New Zealand.
    2. David E. Lebow & Raven E. Saks & Beth Anne Wilson, 1999. "Downward nominal wage rigidity: evidence from the employment cost index," Finance and Economics Discussion Series 1999-31, Board of Governors of the Federal Reserve System (U.S.).
    3. Jean Farès & Seamus Hogan, 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Staff Working Papers 00-1, Bank of Canada.
    4. David Laidler & William B.P. Robson, 2004. "Two Percent Target: The Context, Theory, and Practice of Canadian Monetary Policy since 1991," C.D. Howe Institute Policy Studies, C.D. Howe Institute, number 20041, January.
    5. Brian O'Reilly, 1998. "The Benefits of Low Inflation: Taking Shock "A nickel ain't worth a dime any more" [Yogi Berra]," Technical Reports 83, Bank of Canada.
    6. Allan Crawford, 2001. "How Rigid Are Nominal-Wage Rates?," Staff Working Papers 01-8, Bank of Canada.
    7. Bläs, Barno, 2006. "Ausmaß und reale Konsequenzen nach unter starrer Nominallöhne. Eine Untersuchung für den deutschen Arbeitsmarkt," University of Regensburg Working Papers in Business, Economics and Management Information Systems 416, University of Regensburg, Department of Economics.

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    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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