Staggered Wage Setting without Money Illusion: Variations on a Theme of Taylor

Willem Hendrik Buiter and Ian Jewitt

No 545, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a number of influential recent papers, Taylor (1979a, b; 1980a, b) has analyzed the behaviour of an economy characterized by staggered over-lapping wage contracts and rational expectations. His model has the "Keynesian" feature that the second moment of the distribution function of real output is not invariant under changes in the deterministic (and known) components of monetary policy rules. The reason for this is the inertia in the money wage process induced by the staggered multi-period contracts and the assumption that the wage payments due in any given period under the contract are not "indexed", that is not made contingent on the actually realized values of such nominal variables as the general price level. We retain the crucial assumption of multi-period (staggered) non-contingent contracts but wish to examine the consequences of altering Taylor's assumption that wage bargainers are influenced by relative money wages rather than relative real wages. In Taylor's model money wage contracts are negotiated without reference to past, current and expected future prices. Our suggested modification that wage bargainers are influenced by relative real wages, which we consider somewhat more plausible, has some interesting implications for the empirical estimation of models with staggered wage contracts (see especially Taylor, 1980b).

Date: 1982-01
Note: ITI IFM
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w0545.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:0545

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0545
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().