Wage indexation and the monetary policy regime |
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| Institution: | 1. Department of Economics, Ghent University, Sint Pietersplein 5, Gent B-9000, Belgium;2. National Bank of Belgium, de Berlaimontlaan 14, Brussels 1000, Belgium;1. Federal Reserve Bank of Atlanta, United States;2. Georgia State University, Georgia, United States;3. Levy Economics Institute of Bard College, United States;1. Department of Economics and Finance, University of Rome Tor Vergata, Via Columbia 2, Rome, 00133, Italy;2. World Bank, 1818 H Street NW, Washington DC, 20433, USA;1. European Central Bank, DG Monetary Policy, Italy;2. Sapienza University of Rome, Italy;1. Department of Economics, Macquarie University, Sydney 2109, Australia;2. School of Economics, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, Republic of Korea |
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| Abstract: | We estimate a New Keynesian wage Phillips curve for a panel of 24 OECD countries and allow the degree of wage indexation to past inflation to vary according to structural characteristics. We find that the degree of wage indexation is significantly lower for countries with an inflation target. However, this effect vanishes when we control for the degree of goods market competition. By contrast, more goods market competition is consistently associated with lower wage indexation. This robust finding puts into question whether embedding a constant degree of wage indexation in standard DSGE models is truly structural. |
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