Wage Indexation and Output Stability Revisited

Jadresic, Estaban

doi:10.1353/mcb.2002.0029

Cited by 4 publications

(6 citation statements)

References 21 publications

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“…Jadresic [24] points out the problems that can occur when indexing occurs with a significant lag; then the indexing can become procyclical even for aggregate-demand-caused inflation. Hence any implementation of quasi-real indexing should try to minimize this lag effect.…”

Section: Quasi-real Indexing and The Wage Indexation Literaturementioning

confidence: 99%

The Macro-Share Economy and Nominal GDP Targeting

Eagle¹

2017

TEL

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Using the Pareto criterion and competitive microfoundations, this paper challenges the consensus' focus on inflation control as the goal of monetary economic policy. It is the price level, not inflation per se, that determines whether a borrower or lender gains or loses. Pareto efficiency suggests that the goal of monetary policy should be to minimize, not inflation risk, not even price-level risk, but rather share risk. Share risk is the risk that a predetermined payment as a share of the whole economy will differ from expectations. We conclude that to minimize share risk, central banks should target nominal GDP. Minimizing share risk also helps to minimize employment risk. We show this latter result using a tautological relationship between three variables: 1) hours of employment, 2) the average wage share of the economy, and 3) the percent of nominal GDP going to employee compensation. We use US data on these three variables before, during, and after the 2007-2008 Financial Crisis to study this relationship.

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Section: Quasi-real Indexing and The Wage Indexation Literaturementioning

confidence: 99%

The Macro-Share Economy and Nominal GDP Targeting

Eagle¹

2017

TEL

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“…These neoclassical assumptions can be of little use even as a gross approximation to the issue. Indeed it has long been recognized that standard wage indexation is based on lagged rather than current inflation (see Jadresic 2002). pushes real wages to a given threshold. This is a case in which the institutional wage-setting mechanism does not necessarily rely on a fixed contract length.…”

Section: Pazos On Inflation and Wage Dynamicsmentioning

confidence: 99%

A note on the Pazos-Simonsen mechanism and Kaldor's early research on Latin American inflation

Vera

2013

Rev. Econ. Polit.

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In contrast with the inflationary finance story, inflation acceleration in Latin America has been explained as the result of the interaction of inflation dynamics and the frequency of wage adjustments. Accordingly, small inflation disturbances are connected with a shift from moderate to high inflation (or beyond to hyperinflation) though a mechanism that makes adjustment intervals in wage contracts endogenous. Rudiger Dornbusch (1986) labeled this process the "Pazos-Simonsen mechanism". In this note we summarize the basic contribution of both Felipe Pazos (1978) and Mario Henrique Simonsen (1983) and find crucial differences between their views on wage dynamics, specifically regarding the endogeneity of the time interval between wage readjustments. A remarkable affinity with Pazos's view on wage dynamics and inflation is found in an early and almost unknown essay written by Nicholas Kaldor in 1957 (inspired in his brief experience in Latin America).

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“…Therefore, the outcome of the bargaining process that determines the actual degree of indexation, i.e., the relative bargaining position of the union, is assumed to depend on the conditions of the labour market prevailing in the previous period. 10 Moreover, g t (·) is 8 This kind of instantaneous adjustment that implicitly assumes rational expectations on price determination has been deeply criticized by Jadresic (2002). Some insights on the consequences of nominal wage indexation to lagged inflation are given in the Appendix.…”

Section: Ii3 Short-run Equilibriummentioning

confidence: 99%

“…Following the suggestions put forward by Jadresic (2002), here I examine the consequences of wage indexation when the current nominal wage is 'linked' to past inflation. In this case, instead of (12), the linkage function is given by…”

Section: On Lagged Inflationmentioning

confidence: 99%

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Nominal Wage Indexation, Quasi‐equilibria and Real Wage Dynamics

Guerrazzi

2010

Bulletin of Econ Res

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In contrast to the traditional static approach to indexation, this paper analyses the dynamic consequences for real wages of the mechanism that links nominal wages to inflation. Revisiting a contribution by Dehez and Fitoussi on macroeconomic fluctuations, I analyse a monetary overlapping generations small open economy in which full indexation is interpreted as the occurrence of a dynamic 'quasiequilibrium'. In the suggested framework, the nominal wage is linked to the inflation rate by a specific indexation formula whose shape relies on unions' bargaining positions. Assuming a constant peg for the real interest rate and the superneutrality of money, I show that the economy has a unique long-run quasi-equilibrium allocation whose stability depends only on the behaviour of the monetary authority. Moreover, I show how the operating of a 'wage-aspiration effect' might lead to the persistence of involuntary unemployment.

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Wage Indexation and Output Stability Revisited

Cited by 4 publications

References 21 publications

The Macro-Share Economy and Nominal GDP Targeting

The Macro-Share Economy and Nominal GDP Targeting

A note on the Pazos-Simonsen mechanism and Kaldor's early research on Latin American inflation

Nominal Wage Indexation, Quasi‐equilibria and Real Wage Dynamics

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