Wage Indexation and the Cost of Disinflation

38 Pages Posted: 15 Feb 2006

See all articles by Esteban Jadresic

Esteban Jadresic

International Monetary Fund (IMF)

Date Written: May 1996

Abstract

While a standard academic presumption has been that wage indexation reduces the cost of disinflation, policymakers generally contend that wage indexing makes disinflation more difficult. To shed light on these views, this paper reexamines the effects of wage indexing on the output loss caused by money-based stabilization. It finds that the cost of disinflation with indexed wage contracts tends to be smaller than that with contracts that specify preset time-varying wages, but larger than that with contracts that specify fixed wages . Thus the academic and policymakers views can be both appropriate depending on the standard of reference.

JEL Classification: E24, E31

Suggested Citation

Jadresic, Esteban, Wage Indexation and the Cost of Disinflation (May 1996). IMF Working Paper No. 96/48, Available at SSRN: https://ssrn.com/abstract=882948

Esteban Jadresic (Contact Author)

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