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Real and Relative Wage Rigidities: Wage Indexation in the Open Economy Staggered Contracts Model

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  • Pertti Haaparanta

Abstract

The overlapping wage contract model, known as the staggered contract model, is expanded in an open economy context to include wage indexation to add some more realism to the model. In addition the effects of alternative assumptions about availability of information in wage negotiations are studied. It is shown that in the case of shocks in domestic costs indexation can improve economic stability if demand for the domestic good is price inelastic and wage negotiations are not sensitive to cyclical conditions.

Suggested Citation

  • Pertti Haaparanta, 1986. "Real and Relative Wage Rigidities: Wage Indexation in the Open Economy Staggered Contracts Model," WIDER Working Paper Series wp-1986-007, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-1986-007
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    File URL: https://www.wider.unu.edu/sites/default/files/WP7.pdf
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    References listed on IDEAS

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    1. Stephen J. Turnovsky, 1983. "Wage Indexation and Exchange Market Interventions in a Small Open Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 574-592, November.
    2. Taylor, John B., 1985. "International coordination in the design of macroeconomic policy rules," European Economic Review, Elsevier, vol. 28(1-2), pages 53-81.
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    Cited by:

    1. Yuyan Zhang, 1989. "Economic System Reform in China," WIDER Working Paper Series wp-1989-055, World Institute for Development Economic Research (UNU-WIDER).
    2. Kolodho, G.W. & Ostrowski, M. & Rosati, D., 1990. "Stabilization Policy in Poland; Challenges and Constraints," Research Paper 81, World Institute for Development Economics Research.

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