Indexation Rules, Risk Aversion, and Imperfect Information

Corrado Benassi and Antonello Scorcu

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Nominal wage adjustment is modeled as resulting from bargaining between a risk neutral firm and a risk averse worker, in an environment where the rate of inflation is a random variable. Risk aversion makes for endogenous indexation arrangements, which deliver partial indexation as they exploit imperfect inflation indices; risk aversion also generates a positive correlation between indexation and inflation variance. The model suggests a distinction between complete vs incomplete inflation adjustment on the one hand, and perfect vs imperfect adjustment on the other hand.

Date: 2002
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Citations: View citations in EconPapers (11)

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Journal Article: Indexation Rules, Risk Aversion and Imperfect Information (2003)
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