Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures

Stephen J Turnovsky

No 2042, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The interdependence between the optimal degree of wage indexation and optimal monetary policy is analyzed for a small open economy under a variety of assumptions regarding: (i) relative information available to private agents and the stabilization authority; (ii) the perceived nature of the disturbances impinging on the economy. The distinctions between: (a) unanticipated and anticipated disturbances, and (b) permanent and transitory disturbances, are emphasized. The extent to which stabilization is achieved is shown to depend upon the nature of the disturbances and the available information. The policy redundancy issue is emphasized, implying that optimal rules can frequently be specified in many equivalent ways.

Date: 1986-10
Note: ITI IFM
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Published as Turnovsky, Stephen J. "Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures." Journal of Money, Credit and Banking, Vol. 19, No. 2, (May 1987), pp. 157-180.

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