EconPapers    
Economics at your fingertips  
 

Endogenous wage indexation and aggregate shocks

Julio Carrillo (), Gert Peersman () and Joris Wauters ()

No 604, BIS Working Papers from Bank for International Settlements

Abstract: Empirical and institutional evidence finds considerable time variation in the degree of wage indexation to past inflation, a finding that is at odds with the assumption of constant indexation parameters in most New-Keynesian DSGE models. We build a DSGE model with endogenous wage indexation in which utility maximizing workers select a wage indexation rule in response to aggregate shocks and monetary policy. We show that workers index wages to past inflation when output fluctuations are driven by technology and permanent inflation-target shocks, whereas they index to trend inflation when aggregate demand shocks dominate output fluctuations. The model's equilibrium wage setting can explain the time variation in wage indexation found in post-WWII U.S. data.

Keywords: Wage indexation; Welfare costs; Nominal rigidities (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2017-01
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.bis.org/publ/work604.pdf Full PDF document (application/pdf)
http://www.bis.org/publ/work604.htm (text/html)

Related works:
Working Paper: Endogenous Wage Indexation and Aggregate Shocks (2014) Downloads
Working Paper: Endogenous Wage Indexation and Aggregate Shocks (2014) Downloads
Working Paper: Endogenous Wage Indexation and Aggregate Shocks (2013) Downloads
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: https://EconPapers.repec.org/RePEc:bis:biswps:604

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Christian Beslmeisl ().

 
Page updated 2019-10-22
Handle: RePEc:bis:biswps:604