Loss avoidance in nominal frames and fairness in downward nominal wage rigidity and disinflation

André Lunardelli

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a more general definition of loss avoidance, relates it to fairness and applies it to the labor market. By influencing judgments about what is a fair wage readjustment, it can lead to coordination failures, generating downward nominal wage rigidity (DNWR) and disinflation costs even with common knowledge of credible policies. This suggests that policies with good frames, including inflation targeting, can mitigate the sacrifice ratio.

Keywords: loss avoidance; fair wage effort hypothesis; nominal frame; higher order beliefs; Keynesian beauty contest; Phillips curve; inflation inertia; disinflation; downward nominal wage rigidity. (search for similar items in EconPapers)
JEL-codes: C72 D03 E31 E32 E42 E52 J30 (search for similar items in EconPapers)
Date: 2009-09-21, Revised 2010-02-23
New Economics Papers: this item is included in nep-cba and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20915

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