Wage Indexation and the Cost of Disinflation

May 1, 1996

Preview Citation

Format: Chicago

Esteban Jadresic. Wage Indexation and the Cost of Disinflation, (USA: International Monetary Fund, 1996) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

While a standard academic presumption has been that wage indexation reduces the cost of disinflation, policymakers generally contend that wage indexing makes disinflation more difficult. To shed light on these views, this paper reexamines the effects of wage indexing on the output loss caused by money-based stabilization. It finds that the cost of disinflation with indexed wage contracts tends to be smaller than that with contracts that specify preset time-varying wages, but larger than that with contracts that specify fixed wages. Thus the academic and policymakers views can be both appropriate depending on the standard of reference.

Subject: Disinflation, Inflation, Labor, Prices, Wage adjustments, Wage indexation, Wages

Keywords: Cost of disinflation, Cost of living, Disinflation, Disinflation policy, Eastern Europe, Indexation rule, Indexed contract, Indexed economy, Inflation, Inflation rate, Wage adjustments, Wage contract, Wage indexation, Wages, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/048
Stock No:

WPIEA0481996
ISBN:

9781451846690
ISSN:

1018-5941

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