Monetary Policy in the Presence of Asymmetric Wage Indexation

Giuseppe Diana () and Pierre-Guillaume Méon
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Giuseppe Diana: BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique

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Abstract: We study optimal monetary policy in the presence of asymmetric wage indexation. We find that the monetary authorities do not react to small output shocks, and that their reaction to large shocks is asymmetric, insofar as they absorb positive shocks more than negative ones. As a consequence, we observe that asymmetric wage indexation can be contractionary. It has ambiguous effects on expected inflation and welfare relative to an equivalent symmetric indexation. Optimal symmetric inflation, however, always outperforms optimal asymmetric indexation.

Date: 2008
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Published in Southern Economic Journal, 2008, 75 (1), pp.69-90

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Related works:
Working Paper: Monetary policy in the presence of asymmetric wage indexation (2005)
Working Paper: Monetary policy in the presence of asymmetric wage indexation (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00278970

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