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The Macroeconomic Consequences of Wage Indexation Revisited

  • Esteban Jadresic
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    Since the mid 1970s, there has been considerable research on the macroeconomic consequences of wage indexation. Nonetheless, until recently, this research had not explored explicitly the implications of contracts that index wages to lagged inflation, the usual type of wage indexation observed in practice. Drawing mainly on recent research by the author, this paper examines the consequences of wage indexation to lagged inflation on aggregate wage formation, the cost of disinflation under money - and exchange-rate-based stabilization, the variability of output under alternative shocks and policy regimes, the choice of exchange rate regime, and the level and variability of inflation.

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    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 35.

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    Date of creation: Apr 1998
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    Handle: RePEc:chb:bcchwp:35
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    1. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
    3. Adams, Charles & Coe, David T., 1989. "A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States," MPRA Paper 8622, University Library of Munich, Germany.
    4. Stanley Fischer, 1988. "Real Balances, the Exchange Rate, and Indexation: Real Variables in Disinflation," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 27-49.
    5. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Working Papers 96/48, International Monetary Fund.
    6. Van Gompel, J, 1994. " Stabilization with Wage Indexation and Exchange Rate Flexibility," Journal of Economic Surveys, Wiley Blackwell, vol. 8(3), pages 251-81, September.
    7. Garcia, R. & Bonomo, M., 1992. "Indexation, Staggering and Disinflation," Cahiers de recherche 9226, Universite de Montreal, Departement de sciences economiques.
    8. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 796-825, December.
    9. repec:nbr:nberre:0126 is not listed on IDEAS
    10. 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.
    11. Stephen J. Turnovsky, 1983. "Wage Indexation and Exchange Market Interventions in a Small Open Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 574-92, November.
    12. Genberg, Hans, 1989. " Exchange Rate Management and Macroeconomic Policy: A National Perspective," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 439-69.
    13. Rebelo, Sérgio, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," CEPR Discussion Papers 1220, C.E.P.R. Discussion Papers.
    14. Fischer, Stanley & Summers, Lawrence H, 1989. "Should Governments Learn to Live with Inflation?," American Economic Review, American Economic Association, vol. 79(2), pages 382-87, May.
    15. Joshua Aizenman & Jacob A. Frenkel, 1984. "Optimal Wage Indexation, Foreign-Exchange Intervention and Monetary Policy," NBER Working Papers 1329, National Bureau of Economic Research, Inc.
    16. Ball, Laurence & Cecchetti, Stephen G, 1991. "Wage Indexation and Discretionary Monetary Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1310-19, December.
    17. Morande, Felipe G., 1985. "A note on wage indexation in a model with staggered wage setting," Economics Letters, Elsevier, vol. 17(1-2), pages 19-22.
    18. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
    19. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    20. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
    21. Robert P. Flood & Nancy Peregrim Marion, 1982. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 43-66.
    22. Crosby, Mark, 1995. " Wage Indexation and the Time Consistency of Government Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(1), pages 105-12, March.
    23. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    24. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
    25. Roger T. Kaufman & Geoffrey Woglom, 1986. "The degree of indexation in major U.S. contracts," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(3), pages 439-448, April.
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