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Policy rule evaluation by contract-makers: 100 years of wage contract length in Sweden

  • Klas Fregert
  • Lars Jonung

The length of collective wage agreements in Sweden between 1908 and 2005 is explored to evaluate a variety of policy regimes from the wage contract-makers' perspective. Adopting a new long-run test, it is found that wage contract length decreases in response to an increase in â€macroeconomic uncertainty†across policy regimes. There is also substantial short-run variation in contract length, which cautions against regime divisions based solely on the policy rule. The inflation targeting regime 1995-2005 stands out as an exceptionally stable policy regime as judged by the willingness of contract-makers to repeatedly commit to three-year non-indexed wage agreements. The results are based on a data base on collective wage agreements unique in international comparisons in terms of length and coverage.

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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 270.

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Length: 34 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:euf:ecopap:0270
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  1. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
  2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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  8. Danziger, Leif, 1988. "Real Shocks, Efficient Risk Sharing, and the Duration of Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 435-40, May.
  9. Christofides, L. & Peng, C., 2004. "Contract Duration and Indexation in a Period of Real and Nominal Uncertainty," Working Papers 2004-3, University of Guelph, Department of Economics and Finance.
  10. Fethke, Gary C & Policano, Andrew J, 1981. "Cooperative Responses by Public and Private Agents to Aggregate Demand and Supply Disturbances," Economica, London School of Economics and Political Science, vol. 48(190), pages 155-71, May.
  11. David Longworth, 2002. "Inflation and the Macroeconomy: Changes from the 1980s to the 1990s," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 3-18.
  12. Stanley Fischer, 1984. "Contracts, Credibility, and Disinflation," NBER Working Papers 1339, National Bureau of Economic Research, Inc.
  13. Murphy, Kevin J., 2000. "What effect does uncertainty have on the length of labor contracts?," Labour Economics, Elsevier, vol. 7(2), pages 181-201, March.
  14. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October.
  15. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December.
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