Reputation and Indexation in an Inflation Targeting Framework

Nir Klein
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Nir Klein: Bank of Israel, Tel Aviv University

No 2003.13, Bank of Israel Working Papers from Bank of Israel

Abstract: This paper explores the relationship between a policymaker’s reputation and the optimal wage indexation in an inflation-targeting framework, in which there is uncertainty regarding the policymaker’s ability for commitment. The simulation results suggest that the optimal wage indexation is non–monotonic in the policymaker’s reputation. In particular, at low levels of reputation, a rise in reputation leads to an increase in the wage indexation, while at higher levels of reputation, a rise in reputation leads to a reduction in the wage indexation. This result holds both in the social planner framework and in the case where there is a labor union that determines not only the nominal wage but also its level of indexation.

Keywords: Inflation targets; reputation; wage indexation (search for similar items in EconPapers)
Pages: 36 pages
Date: 2003-09
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https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_2003.13.pdf First version, 2003 (application/pdf)

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