Wage and Public Debt Indexation

Author/Editor:

Pablo Emilio Guidotti

Publication Date:

August 1, 1992

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 examines the relationship between the degree of wage indexation chosen by private agents and the degree of indexation of the public debt. It is shown that the government is likely to respond to an increase in the degree of wage indexation by increasing the portion of the public debt that is indexed. By contrast, the effect of an increase in public debt indexation on the degree of wage indexation is ambiguous. In equilibrium, depending on the sources of shocks to the economy, the degree of wage indexation may be positively or negatively related to that of debt indexation. This relationship is analyzed both in situations where the policymakers are able to precommit policies and in those where precommitment is not possible.

Series:

Working Paper No. 92/67

Notes:

Also published in Staff Papers, Vol. 40, No. 2, June 1993.

English

Publication Date:

August 1, 1992

ISBN/ISSN:

9781451848847/1018-5941

Stock No:

WPIEA0671992

Format:

Paper

Pages:

34

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