Wage Indexation and Macroeconomic Stability: The Gray-Fischer Theorem Revisted

Esteban Jadresic

No 1996/121, IMF Working Papers from International Monetary Fund

Abstract: Since the seminal papers by Gray (1976) and Fischer (1977) were published, the major theorem of the wage indexation literature has been that indexing wages stabilizes output when shocks are nominal and destabilizes output when shocks are real. This paper reexamines the validity of this proposition taking into account the lags in actual indexation practices in an economy similar to that originally considered by those authors. It shows that in such a setup, wage contracts indexed to lagged inflation tend to destabilize output regardless of whether shocks are nominal or real.

Keywords: WP; money supply; wage contract; indexing wage; indexation clause; aggregate wage; indexing money supply; Wages; Wage indexation; Inflation; Monetary base; Wage adjustments (search for similar items in EconPapers)
Pages: 24
Date: 1996-11-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=1992 (application/pdf)

Related works:
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:imf:imfwpa:1996/121

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().