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Reputation and Indexation in an Inflation Targeting Framework

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  • Nir Klein

    (Bank of Israel, Tel Aviv University)

Abstract

This paper explores the relationship between a policymaker’s reputation and the optimal wage indexation in an inflation-targeting framework, in which there is uncertainty regarding the policymaker’s ability for commitment. The simulation results suggest that the optimal wage indexation is non–monotonic in the policymaker’s reputation. In particular, at low levels of reputation, a rise in reputation leads to an increase in the wage indexation, while at higher levels of reputation, a rise in reputation leads to a reduction in the wage indexation. This result holds both in the social planner framework and in the case where there is a labor union that determines not only the nominal wage but also its level of indexation.

Suggested Citation

  • Nir Klein, 2003. "Reputation and Indexation in an Inflation Targeting Framework," Bank of Israel Working Papers 2003.13, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2003.13
    as

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    References listed on IDEAS

    as
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