Wage Indexation and the Cost of Disinflation

IMF Working Papers, May 1, 1996

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Wage Indexation and the Cost of Disinflation

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Bibliographic details

• Authors: Esteban Jadresic
• Published: May 1, 1996
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451846690.001

Summary and central finding

• 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.
• The paper reexamines the effects of wage indexing on the output loss caused by money-based stabilization.
• Principal finding: 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.
• Concluding interpretation: the academic and policymakers views can be both appropriate depending on the standard of reference.

Subjects and keywords

• Subject: Disinflation, Inflation, Labor, Prices, Wage adjustments, Wage indexation, Wages
• Keywords: cost of disinflation, cost of living, Disinflation, disinflation policy, Eastern Europe, indexation rule, indexed contract, indexed economy, Inflation, inflation rate, Wage adjustments, wage contract, Wage indexation, Wages, WP