NOMINAL WAGE INDEXATION,QUASI‐EQUILIBRIA AND REAL WAGE DYNAMICS |
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Authors: | Marco Guerrazzi |
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Institution: | Department of Economics, University of Pisa, Italy |
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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 ‘quasi‐equilibrium’. 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‐aspiration effect’ might lead to the persistence of involuntary unemployment. |
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Keywords: | linkage function nominal wage indexation quasi‐equilibria real wage dynamics E21 E24 |
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