Examining Price-Wage Dynamics in a Small Open Economy: The Case of Uruguay
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Summary:
The recent increase of inflation globally has led to a renewed interest in understanding the link between inflation and wages. In Uruguay, the presence of centralized wage bargaining and indexation practices raises the question as to what extent wage growth dynamics can make the response of inflation to shocks more persistent. We use a medium-scale DSGE model which incorporates indexation in the wage setting equation to analyze the interactions between wage setting behavior and other macroeconomic variables, as well as the role of monetary policy. The analysis suggests that wage indexation increases the persistence of the response of inflation to domestic and foreign shocks, it also affects the monetary policy transmission mechanism and the severity of the trade-offs faced by the central bank.
Series:
Working Paper No. 2024/105
Subject:
Inflation Inflation targeting Labor Monetary policy Prices Wage indexation Wage setting Wages
Frequency:
regular
English
Publication Date:
May 24, 2024
ISBN/ISSN:
9798400275432/1018-5941
Stock No:
WPIEA2024105
Format:
Paper
Pages:
34
Please address any questions about this title to publications@imf.org