The Macroeconomic Consequences of Wage Indexation Revisited

Jadresic, Esteban

doi:10.5089/9781451843231.001

Cited by 6 publications

(6 citation statements)

References 37 publications

(48 reference statements)

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“…Finally, assuming θ = 2, and relying on the same second-order Taylor approximation of flow 25 Initially we drop the i subscripts in order to simplify the notation.…”

Section: Appendix Cmentioning

confidence: 99%

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State-Dependent Pricing under Infrequent Information: A Unified Framework

2010

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe characterize optimal state-dependent pricing rules under various forms of infrequent information. In all models, infrequent price changes arise from the existence of a lump-sum "menu cost." We entertain various alternatives for the source and nature of infrequent information. In two benchmark cases with continuously available information, optimal pricing rules are purely state-dependent. In contrast, in all environments with infrequent information, optimal pricing rules are both time-and state-dependent, characterized by "trigger strategies" that depend on the time elapsed since the last date when information was fully factored into the pricing decision. After considering the case in which information arrives infrequently for exogenous reasons, we address pricing problems in which gathering and processing information also entails a lump-sum cost. When the information and adjustment costs must be incurred simultaneously, the optimal pricing policy is a fixed-price time-dependent rule. When the costs are dissociated, the optimal rule features price stickiness and inattentiveness. Finally, we consider versions of the price-setting problems in which firms continuously entertain partial information. We characterize the optimal pricing rules and provide numerical solution algorithms and examples in a unified framework.

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“…Finally, assuming θ = 2, and relying on the same second-order Taylor approximation of flow 25 Initially we drop the i subscripts in order to simplify the notation.…”

Section: Appendix Cmentioning

confidence: 99%

“…Between information dates and in the absence of price adjustments, the differential equation which characterizes the evolution of the value function is still given by (25):…”

Section: Dissociated Information and Adjustment Costsmentioning

confidence: 99%

State-Dependent Pricing under Infrequent Information: A Unified Framework

2010

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“…Most new Keynesian models incorporate inflation persistence by assuming that prices are indexed to lagged inflation. Jadresic (1998) and Perez (2003), among others, introduce inflation persistence by indexing wages to lagged inflation. The latter study concludes that persistence in inflation is higher, the higher the proportion of labour contracts that include indexation clauses.…”

Section: Equilibrium Inflation Under Optimal Monetary Policymentioning

confidence: 99%

“…Results of this paper show that wage indexation insulates the real sector of the economy from nominal or monetary shocks, but tends to make the effects of real shocks worse. Jadresic (1998) also investigates the effects of constant wage indexation. The indexation rule employed in the aforementioned study differs from that of previous studies in that it assumes an indexation to lagged inflation scheme.…”

Section: Introductionmentioning

confidence: 99%

Monetary Policy in the Presence of Random Wage Indexation

Attey

Vries

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractEmpirical estimations suggest heavy-tailed unconditional distributions for inflation, the output gap and the interest rate. However, standard NK models used in policy analysis imply normal distributions for these variables. In this study, we propose a model which replicates the above mentioned empirical features of inflation,the output gap and the interest rate and subsequently investigate the conduct of monetary policy in this model. The novelty of this study is the introduction of random wage indexation as a source of multiplicative shocks. The findings of this study include the following: Firstly, the unconditional distributions of inflation, the output gap and the interest rates exhibit heavy-tailed characteristics.Secondly, under an indexation to lagged inflation scheme, there exists a positive relationship between expected inflation and conditional variance of inflation. Finally, it is better to target current inflation rather than lagged inflation when conducting monetary policy under a Taylor rule. JEL Classification Codes: E31, E40, E52

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“…An important criticism to this line of argument is that it needs immediate and synchronized indexation. The conclusions are substantially modified in the face of lagged, uncoordinated indexation (seeJadresic, 1998).©International Monetary Fund. Not for Redistribution…”

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confidence: 99%

Outside the Band: Depreciation and Inflation Dynamics in Chile

Ruiz

2016

IMF Working Papers

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This paper examines inflation dynamics in Chile during the last peso depreciation episode 2013−15. The evidence is for substantial pass-through effects to inflation, given the large and persistent depreciation movement. Widespread indexation practices in non-traded goods markets are found to amplify the inflation response to the depreciation, while the role of wage indexation is less relevant to the inflation dynamics. Overall, inflation would have remained within the central bank's target band absent the peso depreciation. The analysis also shows that tightening monetary policy in response to a depreciation shock can be costly in terms of output: the response of activity to rates is found to be strong, while the transmission from activity to inflation is found to be weak. Simulations under uncertainty about the extent of the pass-through also suggest that monetary policy can play a countercyclical role in the face of depreciation shocks at a moderate inflationary cost, as long as inflation expectations remain anchored.

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The Macroeconomic Consequences of Wage Indexation Revisited

Cited by 6 publications

References 37 publications

State-Dependent Pricing under Infrequent Information: A Unified Framework

State-Dependent Pricing under Infrequent Information: A Unified Framework

Monetary Policy in the Presence of Random Wage Indexation

Outside the Band: Depreciation and Inflation Dynamics in Chile

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