Macroeconomic Performance Under Alternative Exchange Rate Regimes: Does Wage Indexation Matter?

August 1, 1998

Preview Citation

Format: Chicago

Esteban Jadresic. Macroeconomic Performance Under Alternative Exchange Rate Regimes: Does Wage Indexation Matter?, (USA: International Monetary Fund, 1998) accessed December 21, 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

This paper reexamines the macroeconomic effects of wage indexation in an open economy under alternative exchange rate regimes. The main finding is that, once the lags in actual indexation rules are considered, wage indexation affects output behavior substantially less than posited in the previous academic literature. This result implies that the academic view that wage indexation makes a flexible exchange rate generally preferable is unwarranted and suggests that the choice of exchange rate regime with and without wage indexation depends on similar factors. The analysis also reveals that the net effects of wage indexation on macroeconomic stability are ambiguous.

Subject: Exchange rate arrangements, Floating exchange rates, Foreign exchange, Inflation, Labor, Prices, Wage indexation, Wages

Keywords: Demand shock, Efficiency wage, Exchange rate arrangements, Exchange rate regimes, Floating exchange rates, Indexation, Indexation clause, Indexation literature, Indexation rule, Inflation, Inflation rate, Open economy, Output gap, Rate of change, Wage indexation, Wages, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/118
Stock No:

WPIEA1181998
ISBN:

9781451941036
ISSN:

1018-5941

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