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-spiration effect’ might lead to the persistence of involuntary unemployment.
Nominal Wage Indexation, Quasi-Equilibria and Real Wage Dynamics
GUERRAZZI, MARCO
2010-01-01
Abstract
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-spiration effect’ might lead to the persistence of involuntary unemployment.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.