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

  • Seamus Hogan

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.

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Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 24 (1998)
Issue (Month): 4 (December)
Pages: 513-525

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Handle: RePEc:cpp:issued:v:24:y:1998:i:4:p:513-525
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  1. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
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  10. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-31, August.
  11. John E. Golob, 1993. "Inflation, inflation uncertainty, and relative price variability: a survey," Research Working Paper 93-15, Federal Reserve Bank of Kansas City.
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  13. Ben S. Bernanke & Martin L. Parkinson, 1990. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," NBER Working Papers 3503, National Bureau of Economic Research, Inc.
  14. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
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