Macroeconomic Policy and the Current Account in an Open Economy with Partial Wage Indexation*

In Australia the practice of partially indexing wages has become an art form. While open economy macroeconomics has been extended by various authors to the indexed wage case, none highlights the distinctive effects of partial indexation. This paper examines short-and long-run consequences of partial indexation. The standard conclusions that partial indexation is conducive to growth and that fiscal policy with partial indexation is expansionary are seriously questioned