Optimal Wage Re-Negotiation

Joshua Aizenman

No 1279, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates an economy in which there are short-term wage contracts that are re-negotiated under certain conditions. This paper determines the optimal frequency of wage re-negotiation and shows that it depends positively on measures of aggregate variability and Phillips curve slope. The role of optimal wage re-negotiation is to mitigate the output effects of various shocks. In the context of an open economy, it is shown that the desirable exchange rate regime in an economy with optimal wage re-negotiation depends on the stochastic structure of the economy.

Date: 1984-02
Note: ITI IFM
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Published as Aizenman, Joshua. "Optimal Wage Re-Negotiation in a Closed and Open Economy. "Journal of Monetary Economics, Vol. 13, (1984), pp. 251-262.

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