Macroeconomic Performance Under Alternative Exchange Rate Regimes : Does Wage Indexation Matter?

Author/Editor:

Esteban Jadresic

Publication Date:

August 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper reexamines the macroeconomic effects of wage indexation in an open economy under alternative exchange rate regimes. The main finding is that, once the lags in actual indexation rules are considered, wage indexation affects output behavior substantially less than posited in the previous academic literature. This result implies that the academic view that wage indexation makes a flexible exchange rate generally preferable is unwarranted and suggests that the choice of exchange rate regime with and without wage indexation depends on similar factors. The analysis also reveals that the net effects of wage indexation on macroeconomic stability are ambiguous.

Series:

Working Paper No. 98/118

English

Publication Date:

August 1, 1998

ISBN/ISSN:

9781451941036/1018-5941

Stock No:

WPIEA1181998

Format:

Paper

Pages:

35

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