Wage Indexation and the Cost of Disinflation
Summary:
While a standard academic presumption has been that wage indexation reduces the cost of disinflation, policymakers generally contend that wage indexing makes disinflation more difficult. To shed light on these views, this paper reexamines the effects of wage indexing on the output loss caused by money-based stabilization. It finds that the cost of disinflation with indexed wage contracts tends to be smaller than that with contracts that specify preset time-varying wages, but larger than that with contracts that specify fixed wages. Thus the academic and policymakers views can be both appropriate depending on the standard of reference.
Series:
Working Paper No. 1996/048
Subject:
Disinflation Inflation Labor Prices Wage adjustments Wage indexation Wages
English
Publication Date:
May 1, 1996
ISBN/ISSN:
9781451846690/1018-5941
Stock No:
WPIEA0481996
Pages:
38
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