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Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures


  • Stephen J. Turnovsky


The interdependence between the optimal degree of wage indexation and optimal monetary policy is analyzed for a small open economy under a variety of assumptions regarding: (i) relative information available to private agents and the stabilization authority; (ii) the perceived nature of the disturbances impinging on the economy. The distinctions between: (a) unanticipated and anticipated disturbances, and (b) permanent and transitory disturbances, are emphasized. The extent to which stabilization is achieved is shown to depend upon the nature of the disturbances and the available information. The policy redundancy issue is emphasized, implying that optimal rules can frequently be specified in many equivalent ways.

Suggested Citation

  • Stephen J. Turnovsky, 1986. "Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures," NBER Working Papers 2042, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2042
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    Cited by:

    1. Richard T. Froyen & Alfred V. Guender, 2012. "Instrument versus Target Rules As Specifications of Optimal Monetary Policy," International Finance, Wiley Blackwell, vol. 15(1), pages 99-123, April.
    2. Romeo M. BAUTISTA, 1998. "Effects Of Domestic Policies And External Factors On Agricultural Prices: Cassava And Soybeans In Indonesia," The Developing Economies, Institute of Developing Economies, vol. 36(2), pages 155-177, June.
    3. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    4. Bindseil, Ulrich, 1997. "Die Stabilisierungswirkungen von Mindestreserven," Discussion Paper Series 1: Economic Studies 1997,01, Deutsche Bundesbank.
    5. Ernst Fehr & Franz Hof, 1994. "Wage bargaining and shock sensitivity of a small open economy," Journal of Economics, Springer, vol. 59(3), pages 259-286, October.

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