implications of economic interdependence for endogenous wage indexation decisions 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

optimal wage indexation in a multisector economy optimal wage indexation is analyzed in an economy subject to common and sector specific supply shocks and aggregate demand shocks where one sector has wage contracts and the other has a walrasian labor market it is shown that it is optimal in this setting to index wages partially to unanticipated economywide inflation and to industry specific profits consequently this study provides possible theoretical explanations for observation of both cpi indexation and profit sharing contracts and for the failure of purely aggregative indexation models to explain disaggregate level behavior copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

contractual arrangement and marketing practices in the indirect export channel the association between contractual arrangement and the marketing practices of export intermediaries and domestic supplies is examined based on data collected from a national sample of export management companies the effect of structuring the export arrangement as a contractual administrative or conventional channel is analyzed prior research suggests that contractual form establishes the framework within which all the economic and sociopolitical interactions between the supplier and export middleman take place hypothesized relationship between export practices and channel structure are empirically tested and the central role of structure in the operation of export channels is largely confirmed

wage indexation and the time consistency of government policy this paper concerns the role of wage indexation as a mechanism for enabling an economy to achieve outcomes that would not otherwise be time consistent the desirability of indexation depends on the size of real and nominal shocks and on a policymaker s incentives for short run inflation surprises policymakers incentives to utilize wage indexation are examined and it is found that weak policymakers are more likely to choose wage indexation hence in an electoral equilibrium voters may choose a policymaker who cares more about unemployment than inflation but who chooses wage indexation to commit to low inflation copyright 1995 by the editors of the scandinavian journal of economics

on optimal wage indexation when shocks are real abstract this note studies the optimal degree of wage indexation in the presence of real shocks contrary to what is indicated in the literature it is demonstrated that the optimal degree of indexation is not limited to 0 1 but may take any value in

a note on unionization and the elasticity of substitution if unions force employers off their demand curves the measured elasticity of substitutio n should be lower where unionization is stronger estimates based on pooled data for twenty two digit sic canadian manufacturing industrie s over the period 1971 81 support this proposition point estimates a re that the elasticity is 1 98 in the absence of unions 1 04 if empl oyees are fifty percent unionized and only 0 10 if employees are one hundred percent unionized however the results are not very robust to specification changes

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

wage indexation and discretionary monetary policy since the early 1970 s both academic researchers and policymakers have devoted considerable attention to the macroeconomic effects of wage indexation however these two groups have focused on different effects starting with jo anna gray 1976 and stanley fischer 1977a formal models emphasize the role of indexation in stabilizing or destabilizing output in contrast informal policy discussions usually focus on the allegation that indexation is inflationary e g arthur okun 1971 mario simonsen 1983 eliana cardoso and rudiger dornbusch 1987 to reduce this gap this paper presents a model of the effects of indexation on inflation and asks whether indexation raises economic welfare when these effects are taken into account until recently it was difficult to formalize the argument that indexation is inflationary because economists lacked models of the sources of inflation this paper applies the insight of robert barro and david gordon 1983a that with discretionary policy the employment gains from surprise inflation tempt the monetary authority to create positive trend inflation as stressed by fischer and lawrence summers 1989 policies that reduce the costs of inflation such as indexation cause barro gordon policymakers to choose higher inflation indeed inflation can rise so much that welfare falls despite greater protection against inflation this effect is appealing because it captures the common argument that indexation weakens policymakers will to fight inflation 1 this is not the end of the story however because wage indexation has a second effect it reduces the employment effects of surprise inflation that is unlike most policies to reduce the costs of inflation such as indexation of interest rates wage indexation steepens the phillips curve in the barrogordon model a steeper phillips curve reduces the temptation to inflate and hence reduces equilibrium inflation since indexation has one inflationary effect lower costs of inflation and one anti inflationary effect a steeper phillips curve the net effect appears ambiguous even if the net effect on inflation is determined the welfare effect may remain unclear if inflation rises the welfare loss might or might not be outweighed by the lower cost of a given amount of inflation 2 these ambiguities cannot be resolved with the barro gordon model alone because the phillips curve and the effect of inflation on welfare are ad hoc it is plausible that indexation affects these relations but the relative strengths of the effects are unclear resolving the ambiguities requires a more structural model in which the effects of indexation are derived rather than assumed this paper studies such a model specifically we use a model of staggered wagesetting based on gray 1976 fischer 1977a b and john taylor 1980 the degree of indexation is an explicit parameter and so we can derive its net effects on inflation and welfare section i of this paper presents our basic model and derives equilibrium inflation in

factor substitution average firm size and economic growth this paper extends the lucas 1978 the bell journal of economics 9 2 508 523 analysis of firm size by taking into account a normalised aggregate ces production function in a general equilibrium framework it is proved that there is an inverse relation between the elasticity of substitution and average firm size if interpreted together with the fact that richer countries are characterised by a higher elasticity of substitution this result can explain why the recent literature finds a positive association between the importance of smes in an economy and its stage of development but seems to fail in finding causality between the two both have a common origin a high value of the elasticity of substitution this paper also provides a first empirical test of the theory proposed using cross country data from both developed and developing countries

monetary policy in the presence of asymmetric wage indexation we study optimal monetary policy in the presence of asymmetric wage indexation we find that the monetary authorities do not react to small output shocks and that their reaction to large shocks is asymmetric insofar as they absorb positive shocks more than negative ones as a consequence we observe that asymmetric wage indexation can be contractionary it has ambiguous effects on expected inflation and welfare relative to an equivalent symmetric indexation optimal symmetric inflation however always outperforms optimal asymmetric indexation

real aspects of exchange rate regime choice with collapsing fixed rates abstract typical evaluations of the choice of exchange rate regime examine the performance of the real economy and assume that the regimes last indefinitely in contrast actual regimes are quite transitory this paper examines how the predictions of two popular models for the determination of some real economic variables must be modified when agents rationally perceive that a fixed rate regime will be transitory the models studied are simple stochastic versions of the models in dornbusch 1976 and flood and marion 1982

un cola why have cost of living clauses disappeared from union contracts and will they return 1 introduction one of the major changes in collective bargaining in recent decades has been the gradual elimination of cost of living adjustments colas from union contracts in 1976 61 of union workers covered by major collective bargaining contracts had cola provisions but by the end of 1995 when the u s bureau of labor statistics stopped collecting data on collective bargaining settlements cola coverage had fallen to 22 1 although the decline in cola rates has been studied extensively there is no agreement as to which factors are primarily responsible for this decline one view attributes the elimination of colas or escalator clauses to declines in inflationary uncertainty a second view emphasizes the erosion of union power yet another view focuses on structural shifts in the u s economy previous research has not determined the relative importance of these and other hypotheses another reason to reassess cola determination is that the economy has changed since the early research was completed the bulk of studies to examine cola incidence statistically have relied on sample periods that end in 1982 or earlier 2 since then there have been major changes in union strength inflationary uncertainty and other potential determinants of wage indexation including deregulation of certain industries in addition more than 90 of the decline in cola rates has occurred since 1982 it is worthwhile to determine whether the factors deemed to be important in the early studies are still important we provide a comparison with previous research formally assess the contributions of various factors to the erosion of cola rates and provide insights as to likely changes in cola coverage in the future if inflation picks up and with it inflationary uncertainty 3 will cola rates rise to levels not seen since the 1970s what would be the consequences of a rebound in union power of further economic deregulation of likely industrial and demographic shifts in the economy once the major causes of past changes in cola coverage are understood it becomes possible to project the consequences of changes in key economic variables given the concern in macroeconomics with wage indexation and the linkage between wages and prices gray 1976 fischer 1986 ball and cecchetti 1991 schiller 1997 the extent to which cola coverage responds to economic factors has important implications for the economy underlying the empirical analysis is a pooled cross sectional time series model of cola incidence that accounts for industry fixed effects to estimate the model we assemble a panel data set of cola coverage and an array of characteristics for 32 private sector industries over a 22 year period because cola clauses are multiyear in nature the model also recognizes that the percentage of workers covered by cola clauses in a particular year depends on conditions in both the current year and previous years previewing results we find that the major cause of the decline in cola coverage has been the reduction in inflationary uncertainty second in importance has been the erosion of union power both the percentage of the industry s workforce that is unionized and the estimated union wage premium in the industry are highly significant determinants of cola coverage but because the union wage premium has remained largely intact in most industries changes in the premium are much less important than losses in unionization in explaining the overall decline in cola provisions economic deregulation industrial shifts and an increased presence of women in the workforce have had modest effects on cola rates on the basis of our findings a rebound in inflationary uncertainty to the levels experienced in the 1970s would raise cola coverage by 10 percentage points 2 background for workers in long term contracts colas provide at least partial protection from the consequences of unexpected inflation

inflation inflation uncertainty and relative price dispersion evidence from bivariate garch m models abstract one potential real effect of inflation is its influence on the dispersion of relative prices in the economy menu cost models generally imply that higher trend inflation will increase price dispersion in contrast signal extraction models predict that increased inflation uncertainty will raise relative price dispersion existing empirical studies do not distinguish between these separate hypotheses we constuct a bivariate garch m model of inflation and relative price dispersion to test these differing explanations in a single model and find that inflation uncertainty dominates trend inflation as a predictor of relative price dispersion

ces production functions and economic growth we examine inconsistencies and controversies related to the use of ces production functions in growth models first we show that not all variants of ces functions commonly used are consistently specified second using a simple growth model we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more probable it is also pointed out that the effect of a higher elasticity of substitution on the speed of convergence depends on the relative scarcity of the factors of production finally we discuss possible explanations of variations in the elasticity of substitution jel classification o41 o11

wage indexation and time consistency note this note presents a simple model where the decision on the degree of wage indexation is taken by a large agent such as the government the optimal degree of indexing is shown to depend on the variance of real shocks and on the inflations bias of the government due to the incentive to raise employment above the market clearing level wage indexation will be low if real shocks are large and if the government is inflation averse the ability of monetary policy to offset monetary disturbances makes them irrelevant to the determination of the optimal degree of indexing copyright 1994 by ohio state university press

nominal wage flexibility wage indexation and monetary union membership in a monetary union implies stronger incentives for nominal wage flexibility in the form of wage indexation and shorter contract length than non membership this counteracts the stabilisation policy cost of giving up monetary independence but more wage flexibility is only an imperfect substitute for an individual monetary policy it is possible that an increase in wage flexibility is welfare decreasing because of the accompanying rise in price variability the interaction between wage setting and central bank behaviour may result in either multiple equilibria or a unique full indexation equilibrium

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

on the absence of positive wage indexation this paper rationalizes the absence of positive wage indexation in labour contracts that is of indexing provisions that link wage increases to inflation we investigate the equilibrium of a policy game in a stochastic economy in which wage setters and a policy maker interact strategically in order to determine the preferred degree of wage indexation and an optimal stabilization rule respectively our conclusion is that nominal wage rigidity and counterinflationary economic policy represent the best courses of action when price stability is valued and negative responses of contractual wages to price shocks are ruled out under these assumptions moreover the stochastic structure of the economy has no bearing on the optimality of maximal real wage flexibility this paper presents an argument for explaining nominal wage rigidity in labour contracts we investigate the equilibrium of a policy game in a stochastic economy in which wage setters and a policy maker interact strategically in order to determine the preferred degree of wage indexation and an optimal intervention rule respectively our conclusion is that indexing provisions that maximize the flexibility of real wages and counter inflationary economic policy represent the best courses of action for the players in the absence of schemes that create a negative correlation between wage and price movements maximal real wage flexibility is attainable through zero indexation or rigid nominal wages the crucial assumption that drives this result is that some price stability is desirable for the policy maker the introduction of price stability as a goal seems eminently justified from a practical standpoint the federal reserve system s legislative mandate from the federal reserve reform act of 1977 the ongoing debate about the house joint resolution 409 and the delors report which speaks of an unequivocal commitment to maintain price stability as the primary objective of the european system of central banks

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

does firm growth increase corruption evidence from an instrumental variable approach prior literature on the role that firm heterogeneity plays in corruption finds that larger firms pay smaller bribes and are less likely to pay bribes than smaller firms these studies however often overlook the plausible reverse causality between firm growth or firm size and corruption utilizing an innovative identification strategy that accounts for this source of endogeneity this study finds that increased firm size actually causes greater corruption and bureaucratic burdens on a typical firm and provides evidence against the argument for a uniform corruption burden regardless of size it was determined that a one standard deviation increase in sales leads to 0 33 standard deviation increase in bribes and to 0 36 standard deviation increase in management time spent dealing with public officials moreover although corruption burden increases with increasing firm size we find that this relationship is non linear and diminishes in magnitude as firm size approaches to medium and large we conclude with implications and policy considerations

inflation and wage indexation with multiperiod contracts this paper deals with the impact of wage indexation on the rate of inflation in two alternative institutional settings simultaneous and overlapping multiperiod contracts the results show that in the case of simultaneous contracts the degree of indexation determines the timing of price changes but not its intercontract magnitude when contracts are overlapping and uniformly distributed over time indexation always increases the absolute rate of inflation and its variability

resource dependency and institutional theory perspectives on direct and indirect export choices this article develops and tests resource dependency and institutional theory arguments to explain two choices facing sme owner managers 1 the decision whether to export or not and 2 if the firm exports the choice between a direct to customers abroad and an indirect using another firm as intermediary export mode binomial logistic regressions on our sample of 871 dutch smes suggest that institutional theory perspectives owner managers perception of the increased international presence of their domestic competitors customers and suppliers and perceptions of increased use of foreign suppliers explain the decision to export while resource dependency theory arguments owner managers perception of the favorability of access to knowledge and technology of production costs and of access to capital in the home market guide the choice between direct and indirect export modes

unemployment wage bargaining and capital labour substitution many economists believe that capital accumulation technical progress and labour force expansion have no lasting effect on unemployment this view rests on the empirically doubtful assumption that the elasticity of substitution between labour and capital is equal to unity i e production is cobb douglas using a simple model based on the work of layard nickell and jackman this paper demonstrates that with a lower elasticity of substitution the equilibrium unemployment rate is affected by all of the above factors it considers briefly how capital accumulation may be endogenised and what long run implications this has for unemployment copyright 1999 by oxford university press

optimal wage indexation foreign exchange intervention and monetary policy this paper deals with the design of optimal monetary policy and with the interaction between the optimal degrees of wage indexation and foreign exchange intervention the model is governed by the characteristics of the stochastic shocks which affect the economy and by the information set that individuals possess because of cost of negotiations nominal wages are assumed to be precontracted and wage adjustments follow a simple indexation rule that links wage changes to observed changes in price the use of the price level as the only indicator for wage adjustments may not permit an efficient use of available information and may result in welfare loss the analysis specifies the optimal set of feedback rules that should govern policy aiming at the minimization of the welfare loss these feedback rules determine the optimal response of monetary policy to changes in exchange rates interest rates and foreign prices the adoption of the optimal set of feedback rules results in the complete elimination of the welfare cost arising from the simple indexation rule and from the existence of nominal contracts since optimal policies succeed in the elimination of the distortions issues concerning the nature of contracts and the implications of specific assumptions about disequilibrium positions become inconsequential the analysis then proceeds to examine the interdependence between the optimal feedback rules and the optimal degree of wage indexation it is shown that a rise in the degree of exchange rate flexibility raises the optimal degree of wage indexation one of the key conclusions is the proposition that the number of independent feedback rules that govern a policy must equal the number of independent sources of information that influence the determination of the undistorted equilibrium thus it is shown that with a sufficient number of feedback rules for monetary policy there may be no need to introduce wage indexation it is also shown that an economy that is not this abstract was borrowed from another version of this item

time consistency indexation and the costs of inflation abstract we examine the effects of indexation measures on inflation costs of inflation and economic welfare within the barro gordon journal of political economy 1983 91 589 610 model the main result is that wage indexation in addition to making the phillips curve steeper also reduces the marginal cost of inflation which is inflationary

on functions quality and timeliness of economic information economic decisions confront more uncertainty as they grow in scope and reach further into the future they are likely to do so increasingly in decentralized economies that expand and diversify the economic incentives to reduce uncertainty and improve predictions and decisions give rise to the demand for large amounts of diverse information this is not a new phenomenon of course but it is revealed more clearly than ever in the present era of great advances in informational technology for now the demand is to a large extent visibly satisfied the knowledge industries or services of inquiring comthe uncertainty about economic information increases with the probability of error in the underlying data and their processing and interpretation many errors cannot be promptly detected and eliminated but can be gradually reduced over time as attested by the revisions in economic statistics this paper presents substantial evidence on the accuracy of provisional estimates of quarterly and monthly changes in 18 important variables measures of several aspects of data quality and of average lags of data release and signal detection are provided for a collection of 110 widely used economic indicators these materials help identify the location of the more serious measurement errors by variables and period and they show that informational lags of 5 and more months are frequent this paper is part of the national bureau of economic research program on economic fluctuations it was presented at the first international symposium on forecasting in quebec city on may 27 1981 and at the ifo institute for economics research in munich on september 23 1981 financial support from the national science foundation and the aid of the graduate school of business of the university of chicago and nber are gratefully acknowledged i am indebted to louis lambros for helpful suggestions and efficient research and to john gould and geoffrey moore for useful comments 1 growth in the modem economy is motivated by the desire to accumulate human and physical resources capital in the most general sense and is accomplished by actions that necessarily have long term consequences the decisions to choose these particular courses of action strategies must therefore be based on similarly long expectations which are fallible as the risk is high so is the premium on any knowledge that might help the decision maker

are there asymmetries in the response of bank interest rates to monetary shocks this article examines the velocity and asymmetry of the response of bank interest rates to monetary policy shocks using an asymmetric vector error correction model it analyses the pass through of changes in money market rates to retail bank interest rates in italy in the period 1985 2002 the main results of the article are 1 the speed of adjustment of bank interest rates to monetary policy changes increased significantly after the introduction of the 1993 consolidated law on banking 2 interest rate adjustment in response to positive and negative shocks is asymmetric in the short run but not in the long run 3 banks adjust their loan deposit rate faster during periods of monetary tightening easing 4 this asymmetry almost vanished since the 1990s

economic growth and the elasticity of substitution two theorems and some suggestions at the beginning of the twentieth century the work of the swedish economist knut wicksell 1901 marked an important advance in our understanding of the relationship between the structure of production functions and income distribution wicksell had asked the following question among many others suppose that the marginal productivities are equal to the remuneration rates of each factor what then should be the form of the corresponding production function he pointed out p 125 that the general integral of the partial differential equation implied by this relationship was of the form y lf kil which meant in turn that the product y was necessarily a homogeneous of degree one function of capital k and labor l as an example he gave a function where the shares of k and l in y were constant and wrote down the function which would be rediscovered decades later by charles w cobb and paul h douglas 1928 however it is only half a century later in robert m solow s nobel prize winning 1956 essay that implications between the structure of the production function and long run equilibrium or disequilibrium of the economy were drawn in his classic article a contribution to the theory of economic growth solow had considered three cases analytically other cases were also discussed geometrically using a phase diagram he had labeled the two first cases 1hlarrod domar and cobb douglas respectively and he referred to the third type of production function as offering a bit of variety it was y ak 2 l 2 2 a particular case of y akp lp 1p in those early days solow had not pointed out to the reader that his cases could have been numbered 0 1 and 2 following the elasticity of substitution of the corresponding production function it would be only five years later in 1961 that with his coauthors kenneth j arrow et al he would find the general form of the two factor constant elasticity of substitution ces production function by integrating the differential equation corresponding to the observed relationship between output per capita and the wage rate solow s third case was indeed highly interesting since it allowed the possibility of everincreasing income per head even without any technical progress indeed solow showed that due to the efficiency of the system entailed by the particular production function he had chosen there existed a threshold for the savings rates s to generate investment per head large enough for income per head to grow forever that threshold was s nla2 where n is the growth rate of the population it was then natural to ask whether one could express that threshold in terms of the elasticity of substitution a the value of that threshold was determined by de la grandville 1989 to be equal to s no3 or where a is k s coefficient in a normalized ces function equal to a in solow s third case where u 2 for any s and n values this relationship gives also the threshold value in implicit form by the solution of ao1 1 log 3q or ilog nls by totally differentiating the last relationship one could observe that the threshold for the elasticity of substitution to entail ever sustained growth was an in klump faculty of mathematics and economics university of ulm helmholtzstrasse 20 d 89081 ulm germany de la grandville department of economics university of geneva 102 boulevard carl vogt ch 1211 geneva 4 switzerland we gratefully acknowledge the comments of seminar participants at stanford university and at the universities of stuttgart hohenheim and munich where parts of the paper were presented also we would like to thank without implicating in any way robert solow for his insightful remarks and an anonymous referee for very helnfuil supgestions wicksell cobb and douglas would no doubt burst with pride if they knew that one of our first year students wrote in a paper of his of course we recognize here a kirk douglas production function

wage indexation employment and inflation price versus productivity indexing is considered in a model of monetary policy with incomplete information and wage bargaining in a perfectly price indexed economy the inflationary bias due to lack of credibility is eliminated however productivity indexing is more appropriate to dampen macroeconomic fluctuations that are caused by real disturbances we show that productivity indexing alone guarantees both price and employment stability provided the government s reputation is good enough and the union s bargaining power is not too strong this reduces the degree of price indexation as the union becomes weaker and the government s reputation improves productivity indexing is desirable with volatile productivity processes and weak unions jel classification e24 e52

price variability supply side policies and monetary rules wage subsidy policies or demand management are equally effective in stabilizing output about its frictionless level in fischer gray predetermined labor contracts models however if the authorities are also concerned with price variability the optimal monetary rule is unambiguously superior copyright 1987 by the review of economic studies limited

wage and price contracts in a macro model with information costs this paper investigates the efficiency case for fixed price demand side contracts in a fischer gray type of macro model with information costs a simple market clearing macro model with market clearing costs in both labour and goods markets is presented first then predetermined wage contracts into the labour market are introduced contracts involving a demand side rule are compared with the market clearing system as well as alternative contracts based upon either supply side or predetermined quantity rules finally the case where the wage rate and the price level are both predetermined while output is determined by aggregated demand is considered salaires et prix contractuels dans un modele macro e conomique quand des couts d information existent ce memoire examine l efficacite de contrats a prix fixe dans un modele macro economique a la fischer gray quand des cofits d information existent la preniiere section du memoire presente un modele simple qui tient compte explicitement des cofits de l operation du marche tant dans le marche des biens que dans celui du travail la seconde section introduit des salaires contractuels predetermines dans le marche du travail les auteurs comparent les resultats d un tel arrangement dans le cas oii le niveau d emploi est determine par la demande de travail par l offre de travail ou est simplement pre determine la troisieme section examine le cas oiu le taux de salaire et le niveau des prix sont definis contractuellement alors que le niveau de production est determine par la demande agregee in order to explain movements of employment and output over the business cycle much of short run macro economic analysis has been based on the assumption of sticky or predetermined money prices models incorporating sticky prices have also tended to assume demand side quantity rules that is if the wage rate is predetermined employment is assumed to be determined by

inflation and wage indexation in the postwar united states this paper examines the relationship between inflation and wage indexation in the postwar united states using data on the prevalence of cost of living adjustments in major collective bargaining agreements the author finds that increases in inflation precede increases in wage indexation but reductions in inflation do not precede reductions in wage indexation there is virtually no evidence that wage indexation affects inflation copyright 1995 by mit press

optimal wage indexation and monetary policy in an economy with imported raw materials abstract an economy s openness from the input side has important effects on the optimal design of its macroeconomic policies given the exchange rate regime the larger the share of imported raw materials in domestic production the smaller the optimal degree of wage indexation to unanticipated inflation alternatively given the wage indexation parameter the larger the share of imported raw materials in domestic production the smaller the optimal degree of foreign exchange intervention by the monetary authority the more flexible the exchange rate

how do nominal and real rigidities interact a tale of the second best this paper analyses the importance of real wage rigidities in particular through their interaction with price stickiness for optimal monetary policy in a calibrated small open economy dsge model including oil in production and consumption blanchard and gali 2007a show real rigidities to introduce a trade off between stabilising inflation and the welfare relevant output gap the present paper complements their findings by showing that the welfare cost of real rigidities can be substantial compared to nominal frictions in a typical tale of the second best we also show that in the presence of real wage rigidities price stickiness can be welfare enhancing

the benefit of crises for economic reforms when expenditures consistently outrun revenue the resulting inflation may have the effect of convincing the public and government that taxes must be raised to finance public investment in the advanced industrial countries income taxation and big spurts in taxation generally have become possible only under the impact of major emergency and crisis mostly in wartime in a number of developing countries in

the indexation of wages and bonds in brazil this paper analyses the dynamic relationship between the degrees of indexation of wages and public bonds in brazil a simple model is constructed to show that both degrees of indexation are determined simultaneously we apply cointegration techniques and estimate error correction representations to assess the temporal causality between them our results provide empirical support for the existence of simultaneity in the degrees of indexation in brazil in the period 1980 93

the wage price spiral this paper rehabilitates the old wage price spiral it shows that after an increase in aggregate demand the process of adjustment of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms to maintain or increase their markups of prices over wages under continuous price and wage setting the process of adjustment would be instantaneous under staggering of price and wage decisions the adjustment takes time the more inflexible real wages and markups are to shifts in demand the higher is the degree of price level inertia and the longer lasting are the effects of aggregate demand on output

real balances the exchange rate and indexation real variables in disinflation the paper shows first that real exchange rate appreciation typically reduces but may increase the output costs of disinflation the direct favorable effects of cheaper imports on consumer prices on the prices of imported inputs on wage demands and on the demand for money may be outweighed by the unemployment caused by the trade deficit second the effects of wage indexation on the costs of disinflation are reexamined ex ante indexation speeds up disinflation ex post indexation the type observed in practice automatically increases the real wage at the start of a disinflation and may therefore increase the sacrifice ratio

differential information and the role for active stabilization policy a comment in a recent paper t m anderson analyzes a new classical model in which demanders and suppliers are differentially informed he claims that a particular feedback monetary policy but not a private indexation rule is able to perfectly stablize the economy the authors show that anderson s private indexation rule is also able to perfectly stabilize the economy copyright 1991 by the london school of economics and political science

a positive theory of inflation and inflation variance a positive theory of inflation and inflation variance empirically inflation and the variance of inflation are positively associated this paper develops a model that provides a potential explanation for this relationship in terms of the incentives facing the policymaker in a discretionary equilibrium the model can also account for an empirical association between inflation and measures of real output instability there is however no direct causal link whatever from the average rate of inflation to either the variance of inflation or that of real output i introduction the debate over the use rules or discretion in monetary policy has been central to macroeconomics for many years e g simons 1963 lucas 1980 buiter 1980 recently kydland and prescott 1977 and barro and gordon 1983a b have identified discretion as the absence of policy commitment in a game between policymakers and the public they argued that discretionary policymaking will lead governments to create excessive inflation a policy of low inflation is not consistent with incentives facing governments and thus will not be believed by the private sector barro and gordon 1983a argue that this positive theory of monetary policy can help to explain many features of the trend rate of inflation in modern economies high and persistent rates of inflation a positive relationship between inflation and unemployment and the observed countercyclical behaviour of monetary authorities among others these models are based on the premise that there are significant costs to a high but fully anticipated rate of inflation another feature of inflation in modern economics however is the well documented fact that inflation and the variability of inflation are positively associated this phenomenon has been widely observed over different countries at different times 1 this has led researchers to question the feasibility of a steady and predictable positive rate of inflation the finding suggests that high rates of inflation may reduce the ability to forecast future inflation rates a high average inflation rate may add an unnecessary degree of uncertainty to individual decision making and lead to a misallocation of resources friedman 1977 suggests that this may cause output instability and possibly raise the average unemployed rate a related paper by logue and sweeney 1981 establishes that there is a positive relationship between inflation and the variability of economic growth for industrial countries given this perspective the welfare costs associated with inflation might be considerably higher than the traditional costs of anticipated inflation this paper extends the barro and gordon 1983a model of discretionary monetary policy to take account of the relationship between inflation and measures of inflation and output variability the extension focussed on is to model an endogenous wage indexing scheme in the labor market in the discretionary equilibrium wage setters not only form rational expectations of the future price level but also choose an optimal degree of wage indexation this extension to the basic model has the following properties of a discretionary equilibrium 1 there is a positive association between the mean rate of inflation and the magnitude of real disturbances in the economy as well as between the mean inflation rate and the degree of output instability in the economy 2 in an economy where real disturbances are relatively important there is a positive association between the mean rate of inflation and the variance of inflation the explanation behind these results is as follows the lower is the degree of wage indexation the greater is the incentive for monetary authorities to cause surprise inflation and hence the higher is the mean rate of inflation in a discretionary equilibrium but the degree of wage indexation is negatively related to the variance of real disturbances in an economy which is subject to both real and nominal disturbances

stabilization with wage indexation and exchange rate flexibility abstract this survey examines the role of wage indexation and exchange rate policy in dampening fluctuations in output around its target level it is demonstrated that the appropriate choice for wage indexation and exchange rate flexibility is highly sensitive to the nature and the relative importance of the shocks impinging upon the economy as well as to the relevant parameters in the economy moreover the question of the desired flexibility of the exchange rate should be studied in the context of wage indexation and vice versa this interdependence raises the possibility of both policies being complements or substitutes to each other depending on the number of shocks that perturb the economy

centralised wage setting inflation contracts and the optimal choice of central banker the paper examines the appropriate design of central banking institutions in an economy in which the nominal wage is set by an inflation averse monopoly union as a positive mark up over its market clearing value the analysis considers both the optimal choice of central banker and the potential role for a linear inflation contract the optimal set of arrangements is a central banker who attaches less significance to inflation than does society combined with an inflation contract where the value of the contract parameter is related to the union s degree of inflationaversion following the important contribution of rogoff 1985 the appointment of a conservative central banker has been widely accepted as a potential albeit partial solution to the time inconsistency problem associated with discretionary policy making in placing a greater weight on inflation than does the government and society as a whole in the setting of monetary policy the central bank s temptation to create inflation surprises is reduced this then leads to a lower inflation rate in equilibrium than would otherwise prevail whilst in rogoff s stochastic framework this reduction in the inflationary bias has to be weighed against an increase in output variability the appropriate choice of central banker ensures a net improvement in welfare an important feature of rogoff s model is the assumption of an atomistic labour market in which nominal wages embodied in single period contracts reflect interaction between agents who hold no market power such a representation of the labour market also characterises most subsequent extensions of rogoff s analysis e g lohmann 1992 and waller 1992 however a number of recent papers in considering the time inconsistency issue have employed the assumption of unionised wage setting assuming either an allencompassing monopoly union or alternatively a number of individual unions each of which has a non negligible impact on macroeconomic variables examples include agell and ysander 1993 bleaney 1996 cubitt 1992 1995 horn and persson 1988 hutchison and walsh 1998 and skott 1997 these contributions have examined the implications of the assumed labour market imperfection from a variety of perspectives but only those of bleaney and skott directly consider its consequences for the appropriate specification of central bank objectives in what follows we explore the significance of unionised wage setting for

on optimal wage indexation the observed practice of contracting for labor services in advance introduces stickiness or friction into the economic system in the presence of monetary and real stochastic disturbances the stability of the levels of employment and output hinges on the nature of the wage contracts in this paper we demonstrate the existence of optimal indexation schemes that are capable of eliminating the aforementioned friction by duplicating the equilibrium that would obtain if labor services were contracted for after the stochastic disturbances were realized

externalities from contract length an increase in the length of a firm s labor contract contributes to rigidity in the aggregate price level this increases the variance of aggregate demand but decreases the variance of other firms real wages under certain conditions the net effect is to increase the variance of other firms employment this negative externality implies that the equilibrium contract length in a decentralized economy is greater than the social optimum in other words wages are too rigid copyright 1987 by american economic association

multinational corporation internationalization in the service sector a study of japanese trading companies this paper extends chang s 1995 sequential investment theory to include multinational corporations mncs in service industries given this sector s large and growing impact on the global economy to facilitate an examination of service mnc internationalization patterns we develop a new typology of service investment i e core global related local unrelated global and unrelated local based on business relatedness and location specificity we test this typology on a sample of large japanese trading companies our results suggest that the initial investments of service mncs are closely related to their core businesses and are less location specific but that subsequent investments are less related to firms core services and are more location specific a pattern similar to the traditional view on manufacturing mncs we extend our analysis to examine several case studies to provide a richer context for these findings in addition we examine the performance implications of internationalization our findings suggest that firms that internationalize through early investments that are closely related to their core activities outperform those in unrelated businesses over time but that this performance gap between related and unrelated foreign investments diminishes in more advanced stages of internationalization

economic growth technical change biases and the elasticity of substitution a test of the de la grandville hypothesis a recent development in microeconomic theory suggests that the size of the elasticity of substitution between factors is relevant to economic growth this study undertakes an empirical investigation of this proposition comparing two economies the united states and south korea the authors test results support the de la grandville hypothesis that the elasticity of substitution is a potent explanatory variable of economic growth this inquiry also provides a clue to the puzzle that the u s elasticity of substitution between labor and capital is well below unity whereas that of south korea is close to unity nonetheless the u s factor shares have tended to remain fairly stable whereas the distributive shares of south korea seem to have changed in favor of capital their findings indicate that a high elasticity of substitution is a bad signal for the distribution of income under the paradigm of modern technology copyright 1991 by mit press

a new keynesian model of policy irrelevance of the developments in macro theory of the last thirty years few have been as far reaching as the introduction of rational expectations in particular to the study of how discretionary use of monetary policy by central bankers affects output and employment by ascribing rational expectations to private agents lucas 11 kydland and prescott 10 barro and gordon 6 alesina and tabellini 1 rogoff 16 and a host of others have demonstrated examples in which agents who understand the motives of the monetary authority will correctly anticipate the monetary authority s actions and render them ineffective in affecting any real variables in these models it is only the innovations in monetary policy which private agents could not forecast that had any real effects systematic use of the tools of monetary policy to achieve an end were ineffective typically these models represented the economy as a reduced form game in which the payoffs to private agents depended on the realizations of actions of the monetary authority agents forecasts of those actions and random shocks imposed by nature it was understood if not always explicitly stated that some general equilibrium model existed whose equilibrium outcomes generated the payoff functions of the game the goal of the monetary authority was to alter the outcome of the game away from the non cooperative equilibrium towards some other outcome which was not consistent with autarkic payoff maximization but superior to the non cooperative outcome each individual agent would maximize his payoff by correctly anticipating the monetary authority s move in the aggregate the result would be that the monetary authority s action would be rendered ineffective

indexation and incomes policy a study of wage adjustment in unionized manufacturing data from nearly 200 collective bargaining units are used to study the frequency of wage change from 1957 to 1978 it is shown that incomes policies during the kennedy johnson and nixon administrations encouraged changes in the length of time between wage adjustments inflation often thought to be responsible for fluctuations in the coverage of indexing provisions is found to play virtually no role the conclusion is that government intervention in the wageprice process aroused fears that the government will intervene again in the future in the presence of this uncertainty the wage adjustment provisions of collective bargaining contracts were changed

the evolution of the u s international trade intermediary in the 1980s a dynamic model international trade intermediaries such as export management companies have long existed in the united states many studies and reports have provided snapshots of their activities and roles over time their evolution however has hardly been researched mainly for lack of an appropriate dynamic model this paper integrates various conceptual frameworks and theories to develop a useful mode of the evolution of the u s international trade intermediary in the 1980s

factors affecting export intermediaries service offerings the british example this study attempts to determine and explain the service offering behavior of british export intermediaries eis it was empirically confirmed that eis offer two categories of services transaction creating and physical fulfillment services it was postulated that the extent to which an ei offers these types of services is influenced by a set of factors that are internally product market supplier and buyer related empirical tests on a sample of 135 british eis established that an ei s exporting role number of employees amount of undifferentiated products carried number of suppliers and number of countries served all have a direct impact on an ei s service offering behavior

monetary nominal income and exchange rate targets in a small open economy abstract in this paper i examine the properties of monetary nominal income and exchange rate targets as stabilization policies in an open economy perfect capital mobility and a wide variety of transitory random shocks is assumed nominal wages are assumed to have been set in advance of the realization of the shocks none of these rules is in general sufficient to minimize the welfare cost of aggregate fluctations and none necessarily dominates all others under the assumption that monetary control is subject to random errors optimal policy implies reactions to all observable shocks and is characterized by heavy exchange market intervention

the heterogeneity of labor wage indexation and welfare abstract when disturbances are nominal full indexation seems to be optimal for real disturbances less than full indexation should be used in the indexation literature this general result is obtained by assuming that labor is homogeneous and indexation is applied throughout the economy in the paper we show that some qualifications need to be made when labor is heterogeneous and only a small portion of labor market is covered by indexation

globalization and location choice an analysis of us multinational firms in 1980 and 2000 in this paper we examine foreign location choices of the top 100 us multinational corporations mncs in 1980 and 2000 we first ask whether there has been a change in mnc foreign location choice in this two decade period second we explore the underlying reasons of location change by focusing on country level factors accounting for firm industry and regional level explanations our findings suggest first that the extent of mncs activities around the globe is more extensive than assumed by regionalists arguments and well beyond ohmae s triad but still less widespread than claimed by the globalists the two main traditions within the globalization regionalization debate second we uncover an interesting de location pattern in this period third we develop an integrative framework where both economic and institutional cultural arguments are shown to influence mncs foreign location choice in different ways we conclude with a discussion of our findings and provide suggestions for future research

nominal budgeting as a stabilization rule the optimal degree of indexation of public spending abstract we analyze here a novel instrument of fiscal policy the degree of adjustment of public spending to price surprises this acts as an automatic stabilizer which fully substitutes for wage indexation partial reliance on nominal budgeting is usually optimal in contrast to the conventional assumption of pegged real government spending unlike what emerges in the wage indexation literature we show that the more pronounced is the relative importance of demand shocks the stronger is the case for lack of indexed public spending we find that a low degree of wage indexation may be the optimal response to government budgets not cast in real terms

new macroeconomics and credibility analysis this paper gives a general view of the new macroeconomics the new keynesian macroeconomics the real business cycle models and the analysis of credibility of monetary policy an outline of the chief technical features that distinguish the new keynesian and the real business cycle formulations is provided highlighting the specific characteristics that have been reconciled by the recent literature on credibility analysis the point to be illustrated is that the combination of new keynesian market failures and the new classical general equilibrium approach to macroeconomics leads to better microeconomic foundation for the credibility analyses of monetary policy that follow the barro gordon notion of inflation bias of discretionary monetary policy

wage indexation and exchange market intervention in a small open economy the analysis of this paper stresses the interdependence between wage indexation on the one hand and exchange market intervention on the other as tools of macroeconomic stabilization policy in a small open economy subject to stochastic disturbances it is shown how the choice of eitherpolicy instrument impinges on the effectiveness of the other in particular if the domestic money wage is fully indexed to some weighted average of the domestic and foreign price levels then irrespective of what that chosen weight may be exchange market intervention is rendered totally ineffective insofar as the stabilization of the real part of the domestic economy is concerned likewise if the monetary authority intervenes in the exchange market so as to exactly accommodate for nominal movements in the demand for money thereby rendering the excess demand for money dependent only upon real variables then any form of wage indexation is totally ineffective for the stabilization of the real part of the system in either polar case the respective instrument can stabilize the domestic price level alternative combinations of policy for the stabilization for domestic and foreign disturbances are considered this abstract was borrowed from another version of this item

discretionary monetary policy and socially efficient wage indexation it is not uncommon for policy makers especially when they are trying to reduce inflation to create incentives or restrictions that change individual decisions regarding nominal wage indexation this raises a very interesting question for economists if indexation of nominal contracts is the result of utility maximizing behavior why would policy makers try to alter private indexation decisions the usual rationale for governmental involvement in markets provided by microeconomic theory is that individual decisions may cause externalities that create a conflict between individual and social optima extending this logic to the case of indexation suggests that private indexation decisions may create an inflation externality and thus are not socially efficient blanchard 1979 and ball 1988 have investigated the social efficiency of private decisions to index to the price level they find that the equilibrium degree of wage indexation to the price level is socially inefficient if indexation to other relevant variables is costly since indexation costs do not appear to be empirically significant these models do not provide a very convincing argument for governmental involvement in the indexation process furthermore these models do not tie the degree of indexation to the trend inflation rate which seems to be the crucial element for justifying governmental intervention thus in order to pinpoint the exact nature of this externality a model is required that considers endogenous wage indexation but links indexation to the trend inflation rate devereux 1987 1989 uses such a model to examine the relationship between indexation and mean inflation by combining a gray 1976 indexation model with a barro gordon 1983 inflation model he shows that wage indexation affects the mean inflation rate but he does not address the issue of indexation efficiency in this paper we use a synthesis of ball and devereux s models to demonstrate that individual indexation decisions are in general socially inefficient however in contrast to blanchard and ball s

the incidence and intensity of wage indexation an empirical analysis variables suggested by theoretical studies of indexation are considered with a view to examining their utility in the context of the decision to index incidence and the desired degree of indexation when escalator clauses are put into effect intensity the tobit model which can address both of these issues suggests that most of the effects of explanatory variables on the regressand occur by modifying the incidence of indexation not its intensity however the tobit model is itself rejected in favour of separate probit and truncated regression investigations of incidence and intensity respectively the results obtained indicate that the standard list of explanatory variables which one thinks of in the context of the theoretical literature as dealing primarily with intensity perform well in explaining incidence but very poorly in accounting for the non limit observations the latter are influenced by bargaining power proxies such as the unemployment rate and union density a very clear trade off be