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, Strasbourg

No 05-16.RS, Working Papers DULBEA from Université libre de Bruxelles, Department of Applied Economics (DULBEA)

Abstract: This paper studies monetary policy in the presence of asymmetric wage indexation. It is found that 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, asymmetric wage indexation skews the distribution of output to the left, and can therefore be contractionary. It has ambiguous effects on expected inflation, on the volatility of output and inflation, and on expected welfare, relative to an equivalent symmetric indexation. Optimal symmetric inflation however always outperforms optimal asymmetric indexation.

Keywords: monetary policy; wage indexation. (search for similar items in EconPapers)
JEL-codes: E30 E50 E61 J30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2005-09
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Related works:
Working Paper: Monetary policy in the presence of asymmetric wage indexation (2003)
Journal Article: Monetary Policy in the Presence of Asymmetric Wage Indexation (2008)
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