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The Impact of Reference Norms on Inflation Persistence When Wages are Staggered

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 leadership (i.e. asymmetries in reference norms).

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 153.

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Length: 63
Date of creation: 11 Mar 2009
Date of revision:
Handle: RePEc:onb:oenbwp:153
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  8. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
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  16. Imbs, Jean & Jondeau, Eric & Pelgrin, Florian, 2007. "Aggregating Phillips curves," Working Paper Series 0785, European Central Bank.
  17. Jeremy B. Rudd & Karl Whelan, 2003. "Can rational expectations sticky-price models explain inflation dynamics?," Finance and Economics Discussion Series 2003-46, Board of Governors of the Federal Reserve System (U.S.).
  18. Marika Karanassou & Dennis Snower, 2007. "Inflation Persistence and the Philips Curve Revisited," Kiel Working Papers 1349, Kiel Institute for the World Economy.
  19. Franz Traxler & Bernd Brandl & Vera Glassner, 2008. "Pattern Bargaining: An Investigation into its Agency, Context and Evidence," British Journal of Industrial Relations, London School of Economics, vol. 46(1), pages 33-58, 03.
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