Wage Indexation and Macroeconomic Stability: The Gray-Fischer Theorem Revisited
24 Pages Posted: 15 Feb 2006
Date Written: November 1996
Abstract
Since the seminal papers by Gray (1976) and Fischer (1977) were published, the major theorem of the wage indexation literature has been that indexing wages stabilizes output when shocks are nominal and destabilizes output when shocks are real. This paper reexamines the validity of this proposition taking into account the lags in actual indexation practices in an economy similar to that originally considered by those authors. It shows that in such a setup, wage contracts indexed to lagged inflation tend to destabilize output regardless of whether shocks are nominal or real.
JEL Classification: E24, E32, E64
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Nominal Wage Flexibility, Wage Indexation and Monetary Union
By Lars Calmfors and Asa Johansson
-
Unemployment Benefits, Contract Length and Nominal Wage Flexibility
By Lars Calmfors and Asa Johansson