The Experts below are selected from a list of 234 Experts worldwide ranked by ideXlab platform
Lars Calmfors - One of the best experts on this subject based on the ideXlab platform.
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Wage Indexation, THE SCANDINAVIAN MODEL AND MACROECONOMIC STABILITY IN THE OPEN ECONOMY*
2016Co-Authors: Lars Calmfors, Staffan ViottiAbstract:THE rapid inflation of recent years has increased the interest in Wage Indexation as a way of reducing fluctuations in real Wages. Such fluctuations have been especially pronounced in many small open economies that have not resorted to free floating but have instead chosen to peg their exchange rates to other major currencies or to a basket of currencies. It would therefore seem of interest to try to assess the consequences of indexing Wages in a small open fixed-exchange-rate economy. Two different strands of literature can serve as starting points. A first source of inspiration is the literature on Wage Indexation in closed economies, where the Indexation of Wages is seen not so much as a means of safeguarding the purchasing power of Wages but rather as a means of reducing volume fluctuations in output and employment in the case of monetary disturbances.1 A second point of departure is the so-called Scandinavian model of Wage formation for open economies using the distinction between traded an
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nominal Wage flexibility Wage Indexation and monetary union
The Economic Journal, 2006Co-Authors: Lars Calmfors, Asa JohanssonAbstract:Membership in a monetary union implies stronger incentives for nominal Wage flexibility in the form of Wage Indexation and shorter contract length than non-membership. This counteracts the stabilisation policy cost of giving up monetary independence. But more Wage flexibility is only an imperfect substitute for an individual monetary policy. It is possible that an increase in Wage flexibility is welfare-decreasing because of the accompanying rise in price variability. The interaction between Wage setting and central bank behaviour may result in either multiple equilibria or a unique full-Indexation equilibrium.
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nominal Wage flexibility Wage Indexation and monetary union
2002Co-Authors: Lars Calmfors, Asa JohanssonAbstract:Membership in a monetary union implies stronger incentives for nominal Wage flexibility in the form of Wage Indexation and shorter contract length than nonmembership. For example, entry into a monetary union may cause a move from a non-Indexation to an Indexation equilibrium. But more Wage flexibility is only an imperfect substitute for an own monetary policy. It is possible that an increase in Wage flexibility is welfare-decreasing because of the accompanying rise in price variability. The interaction between Wage setting and central bank behaviour may result in either multiple equilibria or a unique full-Indexation equilibrium.
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nominal Wage flexibility Wage Indexation and monetary union
Seminar Papers, 2002Co-Authors: Lars Calmfors, Asa JohanssonAbstract:Membership in a monetary union (EMU) is likely to imply stronger incentives for nominal Wage flexibility in the form of Wage Indexation and shorter contract length than non-membership. For example, EMU entry may cause a move from a nonIndexation to an Indexation equilibrium. But more Wage flexibility is only an imperfect substitute for an own monetary policy. It is possible that an increase in Wage flexibility is welfare-decreasing, because of the accompanying rise in price variability. If Indexation occurs outside the EMU, either multiple equilibria or full-Indexation equilibria may occur.
David D. Vanhoose - One of the best experts on this subject based on the ideXlab platform.
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the rise of goods market competition and the decline in Wage Indexation a macroeconomic approach
Journal of Macroeconomics, 1998Co-Authors: John V. Duca, David D. VanhooseAbstract:This paper shows how heterogeneity in Wage-setting and a link between goods-market competition and nominal Wage Indexation can arise in a multisector economy. By raising the price elasticity of demand, increased goods-market competition makes labor demand and equilibrium employment less sensitive to aggregate demand shocks, thereby reducing the incentive to index. We develop a proxy for the aggregate degree of goods-market competition. Along with inflation risk and supply shock variance measures, this proxy is statistically and economically significant in explaining changes over 1958–95 in the share of workers under contract who are covered by Indexation clauses.
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Implications of Economic Interdependence and Exchange Rate Policy on Endogenous Wage Indexation Decisions
SSRN Electronic Journal, 1996Co-Authors: Jay H. Bryson, Chih-huan Chen, David D. VanhooseAbstract:This paper shows how economic interdependence affects Wage Indexation decisions when monetary authorities do not observe stochastic disturbances. Under a managed exchange rate, atomistic Wage setters in interdependent nations will choose the same degree of Indexation as they would in a small open economy. Under a flexible exchange rate, the likelihood rises that they will choose a lower degree of Indexation than their counterparts in a small open economy as the degree of interdependence rises, as the variance of money demand shocks rise relative to supply shocks, and as supply curves steepen. Finally, Wage Indexation choices are more likely to be strategic complements as the degree of interdependence rises and as the variance of money demand shocks rises relative to supply shocks.
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Discretionary Monetary Policy and Socially Efficient Wage Indexation
The Quarterly Journal of Economics, 1992Co-Authors: Christopher J. Waller, David D. VanhooseAbstract:It is not uncommon for policy-makers, especially when they are trying to reduce inflation, to create incentives or restrictions that change individual decisions regarding nominal Wage Indexation. This raises a very interesting question for economists: if Indexation of nominal contracts is the result of utility-maximizing behavior, why would policy-makers try to alter private Indexation decisions? The usual rationale for governmental involvement in markets provided by microeconomic theory is that individual decisions may cause externalities that create a conflict between individual and social optima. Extending this logic to the case of Indexation suggests that private Indexation decisions may create an inflation externality and, thus, are not socially efficient. Blanchard [1979] and Ball [1988] have investigated the social efficiency of private decisions to index to the price level. They find that the equilibrium degree of Wage Indexation to the price level is socially inefficient if Indexation to other relevant variables is costly. Since Indexation costs do not appear to be empirically significant, these models do not provide a very convincing argument for governmental involvement in the Indexation process. Furthermore, these models do not tie the degree of Indexation to the trend inflation rate, which seems to be the crucial element for justifying governmental intervention. Thus, in order to pinpoint the exact nature of this externality, a model is required that considers endogenous Wage Indexation but links Indexation to the trend inflation rate. Devereux [1987, 1989] uses such a model to examine the relationship between Indexation and mean inflation. By combining a Gray [1976] Indexation model with a Barro-Gordon [1983] inflation model, he shows that Wage Indexation affects the mean inflation rate, but he does not address the issue of Indexation efficiency. In this paper we use a synthesis of Ball and Devereux's models to demonstrate that individual Indexation decisions are, in general, socially inefficient. However, in contrast to Blanchard and Ball's
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Discretion, Wage Indexation, and Inflation
Southern Economic Journal, 1991Co-Authors: David D. Vanhoose, Christopher J. WallerAbstract:It is now well understood that discretionary policy-making frequently leads to socially sub-optimal outcomes. This point was first made by Kydland and Prescott [12] using an example of a monetary policy "game." They argued that, in the presence of output distortions in the economy, the monetary authority has an incentive to renege on earlier promises to maintain price stability by expanding the money supply in order to create unexpected inflation, thereby increasing output and employment. Since private Wage setters form expectations rationally, this policy action is anticipated and, in equilibrium, leads to excessive inflation without any resulting change in output or employment. Consequently, in the absence of enforceable policy rules, the time-consistent discretionary monetary path produces a socially sub-optimal inflation rate. This form of policy behavior has important implications for the decisions of private agents, such as their choice of the degree of Wage Indexation. However, most work in the literature on endogenous Wage Indexation, stemming from the seminal paper by Gray [10], has analyzed the equilibrium Indexation choice assuming either a constant money growth rule [1] or a monetary rule involving lagged or contemporaneous feedback [8; 17]. Only the recent papers by Devereux [5; 6] have attempted to examine the implications of time-consistent discretionary monetary policy for endogenous Wage Indexation. The informational structure he considers has the monetary authority setting the money stock prior to the realization of shocks, so that the authority has no information regarding current period disturbances when determining its course of action. This assumption precludes any contemporaneous attempt by the monetary authority to stabilize output or the price level. Devereux reaches the conclusion that Wage setters, who are aware of the authority's policy decision, will find it optimal to index positively to unanticipated price level surprises, since none of the aggregate shocks are offset directly by the monetary authority. Thus, the informational environment confronting the authority influences the degree of Indexation and, subsequently, the manner in which aggregate demand and supply variability impinge upon social welfare.
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Optimal Wage Indexation in a Multisector Economy
International Economic Review, 1991Co-Authors: John V. Duca, David D. VanhooseAbstract:Optimal Wage Indexation is analyzed in an economy subject to common and sector-specific supply shocks and aggregate demand shocks where one sector has Wage contracts and the other has a Walrasian labor market. It is shown that it is optimal in this setting to index Wages partially to unanticipated economywide inflation and to industry-specific profits. Consequently, this study provides possible theoretical explanations for observation of both CPI Indexation and profit-sharing contracts, and for the failure of purely aggregative Indexation models to explain disaggregate-level behavior. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Asa Johansson - One of the best experts on this subject based on the ideXlab platform.
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nominal Wage flexibility Wage Indexation and monetary union
The Economic Journal, 2006Co-Authors: Lars Calmfors, Asa JohanssonAbstract:Membership in a monetary union implies stronger incentives for nominal Wage flexibility in the form of Wage Indexation and shorter contract length than non-membership. This counteracts the stabilisation policy cost of giving up monetary independence. But more Wage flexibility is only an imperfect substitute for an individual monetary policy. It is possible that an increase in Wage flexibility is welfare-decreasing because of the accompanying rise in price variability. The interaction between Wage setting and central bank behaviour may result in either multiple equilibria or a unique full-Indexation equilibrium.
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nominal Wage flexibility Wage Indexation and monetary union
2002Co-Authors: Lars Calmfors, Asa JohanssonAbstract:Membership in a monetary union implies stronger incentives for nominal Wage flexibility in the form of Wage Indexation and shorter contract length than nonmembership. For example, entry into a monetary union may cause a move from a non-Indexation to an Indexation equilibrium. But more Wage flexibility is only an imperfect substitute for an own monetary policy. It is possible that an increase in Wage flexibility is welfare-decreasing because of the accompanying rise in price variability. The interaction between Wage setting and central bank behaviour may result in either multiple equilibria or a unique full-Indexation equilibrium.
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nominal Wage flexibility Wage Indexation and monetary union
Seminar Papers, 2002Co-Authors: Lars Calmfors, Asa JohanssonAbstract:Membership in a monetary union (EMU) is likely to imply stronger incentives for nominal Wage flexibility in the form of Wage Indexation and shorter contract length than non-membership. For example, EMU entry may cause a move from a nonIndexation to an Indexation equilibrium. But more Wage flexibility is only an imperfect substitute for an own monetary policy. It is possible that an increase in Wage flexibility is welfare-decreasing, because of the accompanying rise in price variability. If Indexation occurs outside the EMU, either multiple equilibria or full-Indexation equilibria may occur.
Casper G De Vries - One of the best experts on this subject based on the ideXlab platform.
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monetary policy in the presence of random Wage Indexation
2016Co-Authors: Jonathan Attey, Casper G De VriesAbstract:textabstractEmpirical 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.
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monetary policy in the presence of random Wage Indexation
2016Co-Authors: Jonathan Attey, Casper G De VriesAbstract:Empirical 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.
Jonathan Attey - One of the best experts on this subject based on the ideXlab platform.
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Time-Varying Degree of Wage Indexation and the New Keynesian Wage Phillips Curve
2016Co-Authors: Jonathan AtteyAbstract:textabstractCost-of-Living-Adjustment (COLA) coverage figures suggest a time variation in the degree of Wage Indexation. In spite of this observation, most current literature conveniently assume a constant degree of Indexation as this variable is not directly observable. This study intends to empirically measure the time variation in the degree of Wage Indexation. To this end, we derive a reduced form version of the New Keynesian Wage Phillips Curve under the assumption of a time varying degree of Wage Indexation. A state-space methodology is then employed in estimating this model using data of selected OECD countries. The study subsequently investigates variables influencing the time variation in the degree of Wage Indexation. Our results consistently suggest a substantial time variation in the degree of Wage Indexation in all countries considered. The Wage Indexation estimates obtained for the US bear remarkable similarities with the figures suggested by COLA coverage. It is subsequently shown that variations in trend inflation significantly explain variations in the degree of Wage Indexation. Finally, there is weak evidence in support of the Gray hypothesis that Wage Indexation is negatively correlated with the variance of productivity shocks.
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Time-Varying Degree of Wage Indexation and the New Keynesian Wage Phillips Curve
2016Co-Authors: Jonathan AtteyAbstract:Cost-of-Living-Adjustment (COLA) coverage figures suggest a time variation in the degree of Wage Indexation. In spite of this observation, most current literature conveniently assume a constant degree of Indexation as this variable is not directly observable. This study intends to empirically measure the time variation in the degree of Wage Indexation. To this end, we derive a reduced form version of the New Keynesian Wage Phillips Curve under the assumption of a time varying degree of Wage Indexation. A state space methodology is then employed in estimating this model using data of selected OECD countries. The study subsequently investigates variables influencing the time variation in the degree of Wage Indexation. Our results consistently suggest a substantial time variation in the degree of Wage Indexation in all countries considered. The Wage Indexation estimates obtained for the US bear remarkable similarities with the figures suggested by COLA coverage. It is subsequently shown that variations in trend inflation significantly explain variations in the degree of Wage Indexation. Finally, there is weak evidence in support of the Gray hypothesis that Wage Indexation is negatively correlated with the variance of productivity shocks.
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monetary policy in the presence of random Wage Indexation
2016Co-Authors: Jonathan Attey, Casper G De VriesAbstract:textabstractEmpirical 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.
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monetary policy in the presence of random Wage Indexation
2016Co-Authors: Jonathan Attey, Casper G De VriesAbstract:Empirical 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.
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Causes and Macroeconomic Consequences of Time Variations in Wage Indexation
2010Co-Authors: Jonathan AtteyAbstract:markdownabstractThis dissertation consists of four related papers investigating the causes and consequences of time variations in the degree of Wage Indexation. Both empirical (structural) estimation and theoretical approaches are adopted in the investigation of the subject. Chapter 2 and Chapter 3 explore the causes while Chapter 3, Chapter 4 and Chapter 5 investigate the consequences. The main findings of this dissertation are as follows. Trend inflation is the most significant variable influencing the level of Wage Indexation while labour market institutional variables regarding Wage (Indexation) negotiations explain the variances of Wage Indexation and of inflation. The possibility of heavy-tailed distributed macroeconomic variables is the main consequence of time variations in Wage Indexation.
