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THE CHANGING RESPONSIVENESS OF WAGES TO PRICE‐LEVEL SHOCKS: EXPLICIT AND IMPLICIT INDEXATION
Author(s) -
Holland A. Steven
Publication year - 1988
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1988.tb01493.x
Subject(s) - indexation , economics , wage , inflation (cosmology) , context (archaeology) , monetary policy , rational expectations , phillips curve , monetary economics , macroeconomics , labour economics , paleontology , physics , theoretical physics , biology
The article provides evidence for the U.S over the period 1961‐84 that the responsiveness of nonunion wages to price‐level shocks changes through time much as the degree of indexation in union contracts does, suggesting that there exists implicit as well as explicit indexation. When coupled with the result from previous research that indexation responds positively to inflation uncertainty, the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity. In the context of a rational expectations model with long‐term wage contracts, a decline in the effectiveness of an activist monetary policy could result.