Discretionary Monetary Policy and Socially Efficient Wage Indexation

Waller, Christopher J.; VanHoose, David D.

doi:10.2307/2118396

Cited by 34 publications

(27 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Proposition 4 is in sharp contrast to Waller and VanHoose [1992], who emphasized the positive external effect of wage indexation on the inflation bias. Our result demonstrates that wage indexation has a negative external effect on stabilizing the economy by state contingent monetary policy.…”

Section: Optimal and Equilibrium Indexationmentioning

confidence: 76%

“…Decentralized wage bargaining creates external effects of indexation: a positive effect on the inflation bias had been recognized by Waller and VanHoose [1992] before. In this paper, we have shown that wage indexation generates a negative externality on the ability to stabilize the real economy with monetary policy.…”

Section: Resultsmentioning

confidence: 99%

“…Adolph and Wolfstetter [1991] detect informational externalities of wage indexation and show that Ball's result is not robust: if monetary policy responds to wage contracts, wage indexation creates a positive external effect by lowering the inflation bias. Decentralized unions do not account for this external effect, so that the overall degree of indexation may be too low (Waller and VanHoose [1992]). However, this approach does not consider welfare improvements of state contingent monetary policy.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Wage Indexation and Monetary Policy

Heinemann¹

2006

JITE

View full text Add to dashboard Cite

This paper analyzes the impact of indexed wage contracts on inflation and social welfare in a Barro-Gordon model with state contingent monetary policy. Wage indexation reduces the inflation bias but may raise the variance of inflation rates. In social optimum wages are fully indexed to the price level, but this requires optimal wage adjustments to productivity shocks. If wage adjustments to productivity are suboptimal, the second best solution calls for non-indexed wage contracts and a central banker with balanced aspiration levels of employment and real wages. In case of decentralized wage bargaining, a prohibition of wage indexation may improve welfare.

show abstract

Section: Optimal and Equilibrium Indexationmentioning

confidence: 76%

Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Wage Indexation and Monetary Policy

Heinemann¹

2006

JITE

View full text Add to dashboard Cite

show abstract

“…Devereaux (1987) shows that it is possible for increased monetary variability to be welfare increasing if it induces trade unions to increase indexation by reducing the incentive of the central bank to inflate. Waller and VanHoose (1992) show that when wage bargaining is decentralized, indexation is too low from a social perspective because private agents fail to consider how their indexation choices affect aggregate indexation and, therefore, trend inflation. The model presented below uses the Barro-Gordon framework to study the strategic interaction between the monetary authority and trade unions, but abstracts from the inflationary bias problem by dropping the assumption that there 7…”

Section: Optimal Wage Indexation Literaturementioning

confidence: 99%

Nominal Wage Flexibility and Monetary Union

Leichter

2004

JEI

View full text Add to dashboard Cite

show abstract

“…The implication is that union coordination effectively indexing wages would tend to increase inflation. On the other hand, Waller and VanHoose (1992) pointed out that indexation steepens the aggregate supply curve, reducing the output and employment gains from (unanticipated) inflation. The incentive to pursue an inflationary policy in the first instance is therefore diminished, implying that through this channel coordinated union action to index wages might reduce an inflation bias.…”

Section: Monetary Policy Wage Setting Institutions and Macroeconomicmentioning

confidence: 99%

Labor market regimes and the effects of monetary policy

Acocella

Bartolomeo

Hibbs

2008

Journal of Macroeconomics

View full text Add to dashboard Cite

In this paper we use a standard multi-union, monopolistic competition model to investigate the qualitative and quantitative responses of inflation and unemployment to monetary policy activism under different institutional arrangements in the labor market, which are defined by the rigidity of nominal wages. We show that the effects of monetary policy on the real economy depend critically on the wage formation regime, and on the ways in which the restrictiveness of policy interacts with product price competition, with union centralization, and with the weight placed on real wage premiums as compared to unemployment in unions' optimal programs. Our interpretation of the results emphasizes how the posture of monetary policy toward inflation influences the strategic calculations that drive union wage setting behavior in different institutional settings. CEFOS AbstractIn this paper we use a standard multi-union, monopolistic competition model to evaluate analytically and numerically the effects of monetary policy on inflation and unemployment under different institutional arrangements in the labor market that are defined by the rigidity of nominal wages. We show that the effects of monetary policy on the real economy depend critically on the wage formation regime, and on the ways in which the restrictiveness of policy interacts with product price competition, wage setting centralization and the utility weight unions place on real wage premiums as compared to unemployment. Our interpretation of the results emphasizes how the posture of monetary policy toward inflation influences the strategic calculations driving unions' wage setting behavior in different institutional environments.

show abstract

Discretionary Monetary Policy and Socially Efficient Wage Indexation

Cited by 34 publications

References 0 publications

Wage Indexation and Monetary Policy

Wage Indexation and Monetary Policy

Nominal Wage Flexibility and Monetary Union

Labor market regimes and the effects of monetary policy

Contact Info

Product

Resources

About