Monetary Policy in the Presence of Asymmetric Wage Indexation

Giuseppe Diana () and Pierre-Guillaume Méon
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Giuseppe Diana: BETA-theme, Université Louis Pasteur, Pôle Européen de Gestion, 61 Avenue de la Forêt Noire, 67085 Strasbourg Cedex, France

Southern Economic Journal, 2008, vol. 75, issue 1, pages 69-90

Abstract: We study optimal monetary policy in the presence of asymmetric wage indexation. We find that the monetary authorities do not react to small output shocks, and that their reaction to large shocks is asymmetric, insofar as they absorb positive shocks more than negative ones. As a consequence, we observe that asymmetric wage indexation can be contractionary. It has ambiguous effects on expected inflation and welfare relative to an equivalent symmetric indexation. Optimal symmetric inflation, however, always outperforms optimal asymmetric indexation.

JEL-codes: E30 E61 J30 (search for similar items in EconPapers)
Date: 2008

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Related works:
Working Paper: Monetary policy in the presence of asymmetric wage indexation (2005)
Working Paper: Monetary policy in the presence of asymmetric wage indexation (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:sej:ancoec:v:75:1:y:2008:p:69-90

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