Premium
Implications of Economic Interdependence for Endogenous Wage Indexation Decisions[Note 1. We are grateful for comments we have received on ...]
Author(s) -
Bryson Jay H.,
Chen Chihhuan,
VanHoose David D.
Publication year - 1998
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00131
Subject(s) - indexation , economics , complementarity (molecular biology) , wage , strategic complements , economic interdependence , microeconomics , macroeconomics , econometrics , monetary policy , labour economics , genetics , political science , law , china , biology
This paper shows how economic interdependence affects the indexation decisions of atomistic wage setters in an environment in which monetary authorities do not observe stochastic disturbances before making their policy choices. If stochastic disturbances are common across countries, interdependence has no effect on equilibrium indexation choices in identical countries. However, if disturbances are country specific, numerical simulations show that interdependence is likely to reduce equilibrium indexation choices relative to a small open economy. We also show that indexation choices may be either strategic complements or strategic substitutes, but that strategic complementarity becomes more likely as the degree of interdependence rises.