Wage Indexation and the Cost of Disinflation

Author/Editor:

Esteban Jadresic

Publication Date:

May 1, 1996

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:

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.

Series:

Working Paper No. 96/48

English

Publication Date:

May 1, 1996

ISBN/ISSN:

9781451846690/1018-5941

Stock No:

WPIEA0481996

Format:

Paper

Pages:

38

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