What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?

Seamus Hogan

Canadian Public Policy, 1998, vol. 24, issue 4, 513-525

Abstract: A recent paper has suggested a reason why there might be a lasting trade-off between inflation and unemployment at low inflation rates. This has led some economists to recommend that Canada increase its inflation rate. The idea underlying this view is that, because firms are reluctant to cut workers' nominal wages, a moderate amount of inflation can be used to facilitate needed reductions in real wages. This paper discusses the link from downward nominal-wage rigidity to unemployment, and considers some of the issues that need to be addressed in order to determine whether a change in Canada's monetary policy is warranted.

Date: 1998
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