Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy
This paper examines the desirability of wage indexation in an open economy subject to economic disturbances which change the terms of trade and raise the prices of imported goods. Two indexation rules are considered, the traditional form of indexation to the consumer price index and indexation to the price of domestic goods alone, the latter proposed as a means of limiting the influence of import prices on the economy. The effects of the rules are shown to depend upon how the terms of trade rather than import prices alone respond to disturbances, since changes in the terms of trade determine what adjustments are required in the two real wages faced by firms and labor.
|Date of creation:||Dec 1982|
|Date of revision:|
|Publication status:||published as Marston, Richard C. "Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy." Journal of Money, Credit and Banking, Vol. 16, No. 3, (August 1984), pp. 285-301.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Anne Romanis Braun, 1976. "Indexation of Wages and Salaries in Developed Economies (Indexation des traitements et salaires dans les pays dÃ©veloppÃ©s) (IndizaciÃ³n de sueldos y salarios en economÃas desarrolladas)," IMF Staff Papers, Palgrave Macmillan, vol. 23(1), pages 226-271, March.
- Brunner, Karl & Meltzer, Allan H., 1977. "Stabilization of the domestic and international economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 1-6, January.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Richard C. Marston, 1981. "Wages, Relative Prices, and the Choice between Fixed and Flexible Exchange Rates," NBER Working Papers 0793, National Bureau of Economic Research, Inc.
- 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.
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