Arbeitspapier
The Inflationary Impact of Wage Indexation
It is an open question whether and how indexed wage contracts reduce welfare or raise average inflation. This paper analyzes the impact of indexed wage contracts on inflation and social welfare in a BarroGordon model with discretionary monetary policy by endogenizing social costs of indexation. Main results are: 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 nonindexed 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.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 867
- Classification
-
Wirtschaft
- Subject
-
monetary policy
Phillips curve
wage bargaining
wage indexation
- Event
-
Geistige Schöpfung
- (who)
-
Heinemann, Frank
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2003
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Heinemann, Frank
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2003
Other Objects (12)
The price-wage inflationary spiral: The mixed economic case
Quantifying the inflationary impact of fiscal stimulus under supply constraints
Inflationary performance in a monetary union with large wage setters
Is the green transition inflationary?
Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe
The Inflationary Process in Open Economies
Inflationary household uncertainty shocks
Inflationary household uncertainty shocks
Inflationary memory as restrictive factor of the impact of the public expense in the economic growth: Lessons from high inflation Latin American countries using an innovative inflationary memory indicator
Money as an inflationary phenomenon
The wage impact of undocumented workers
Will the green transition be inflationary? Expectations matter
The price-wage inflationary spiral: The mixed economic case
Quantifying the inflationary impact of fiscal stimulus under supply constraints
Inflationary performance in a monetary union with large wage setters
Is the green transition inflationary?
Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe
The Inflationary Process in Open Economies
Inflationary household uncertainty shocks
Inflationary household uncertainty shocks
Inflationary memory as restrictive factor of the impact of the public expense in the economic growth: Lessons from high inflation Latin American countries using an innovative inflationary memory indicator
Money as an inflationary phenomenon
The wage impact of undocumented workers
Will the green transition be inflationary? Expectations matter
The price-wage inflationary spiral: The mixed economic case
Quantifying the inflationary impact of fiscal stimulus under supply constraints
Inflationary performance in a monetary union with large wage setters
Is the green transition inflationary?
Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe
The Inflationary Process in Open Economies
Inflationary household uncertainty shocks
Inflationary household uncertainty shocks
Inflationary memory as restrictive factor of the impact of the public expense in the economic growth: Lessons from high inflation Latin American countries using an innovative inflationary memory indicator
Money as an inflationary phenomenon
The wage impact of undocumented workers