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The impact of reference norms on inflation persistence when wages are staggered

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  • Knell, Markus
  • Stiglbauer, Alfred

Abstract

In this paper we present an extension of the Taylor model with staggered wages in which wage-setting is also influenced by reference norms (i.e. by benchmark wages). We show that reference norms can considerably increase the persistence of inflation and the extent of real wage rigidity but that these effects depend on the definition of reference norms (e.g. how backward-looking they are) and on whether the importance of norms differs between sectors. Using data on collectively bargained wages in Austria from 1980 to 2006 we show that wage-setting is strongly influenced by reference norms, that the wages of other sectors seem to matter more than own past wages and that there is a clear indication for the existence of wage leader-ship (i.e. asymmetries in reference norms). JEL Classification: E31, E32, E24, J51

Suggested Citation

  • Knell, Markus & Stiglbauer, Alfred, 2009. "The impact of reference norms on inflation persistence when wages are staggered," Working Paper Series 1047, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20091047
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Juillard, M. & Le Bihan, H. & Millard, S., 2013. "Non-uniform wage-staggering: European evidence and monetary policy implications," Working papers 442, Banque de France.
    2. Wendy Carlin, 2013. "Real Exchange Rate Adjustment, Wage-Setting Institutions, and Fiscal Stabilization Policy: Lessons of the Eurozone's First Decade," CESifo Economic Studies, CESifo, vol. 59(3), pages 489-519, September.
    3. Fernando Martins, 2015. "What Survey Data Reveal about Price and Wage Rigidity in Portugal," LABOUR, CEIS, vol. 29(3), pages 291-309, September.

    More about this item

    Keywords

    inflation persistence; real wage rigidity; staggered contracts; wage leadership;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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