which such an increase in spending will bring about a sales increase at consumption - related firms and wage increases for those working there, and thereby encourage a further increase in consumption. the third point is the effects of the government's economic stimulus package formulated last month. while the extent to which the package will push up the economy also depends on the supplementary budget and thus should be closely examined, there will likely be the synergy effects of monetary and fiscal policy mix. that is, the bank has pursued powerful monetary easing measures so that short - and long - term interest rates will be stable at low levels. in this situation, an expansion in fiscal spending is likely to have greater stimulus effects without leading to a rise in interest rates. it is therefore expected that the latest stimulus package will underpin the economy through the synergy effects. taking these points into account, it is projected as a baseline scenario that the recovery trend in the overall economy will gradually become evident through next year, as downward pressure stemming from supply - side constraints and covid - 19 wanes and the effects of the economic stimulus package materialize. risk factors however, as i mentioned at the outset, the outlook for japan's economy entails extremely high uncertainties. the following risk factors warrant attention. first, there remain uncertainties over whether services consumption will pick up steadily during the covid - 19 era. as explained, consumption of face - to - face services, such as eating and drinking as well as accommodations, has been picking up. that said, anecdotal information from firms suggests that vigilance against covid - 19 is sticky and thus people are reluctant to hold large year - end parties or go on a group trip. in some european countries, the number of confirmed cases has resurged despite progress with vaccinations, and cases of the new omicron variant, which is considered to be highly contagious, have been detected. given persistent risk aversion of households in japan, mainly of seniors, the extent to which consumption will recover continues to warrant attention. the second factor is a risk that the effects of supply - side constraints will be amplified or prolonged ( chart 4 ). as mentioned earlier, the issue of parts shortages caused by the spread of covid - 19 in southeast asia has started to dissipate. that said, there remains a fundamental problem that firms'supply capacity has not been able to keep up with the surge in demand, mainly for digital - related goods

and early 1980s showed that lower uncertainty about inflation should result in longer contracts. 40 empirical evidence for canada gathered in the early 1980s was consistent with this theoretical work. 41 using several measures of inflation uncertainty, researchers at the bank of canada have confirmed a robust negative relationship between inflation uncertainty and the duration of union contracts in the private sector. 42 in other words, as uncertainty about inflation has fallen, the duration of labour contracts has lengthened. indeed, it has been estimated that each percentage point decrease in inflation uncertainty increases contract length by about two months. 43 one positive implication of groshen and schweitzer ( 1999 ). hammermesh ( 1986 ). crawford ( 2001 ). in the early 1980s, the annual standard deviation of wage settlements in the private sector was just over 3 per cent. this fell to about 1 per cent in the year 2000. the data are drawn from a database maintained by human resources development canada, which contains information on agreements signed in the unionized sector of the economy. note that wage settlements in the public sector are excluded from the numbers presented in the text. data in this sector are distorted by wage freezes in the 1990s as governments at various levels sought to control budget deficits. in 1980, average duration across all contracts in the private sector was approximately 27 months. in 2001, it was about 36 months. gray ( 1978 ), canzoneri ( 1980 ). since then, advances in econometric techniques have allowed researchers to better specify and construct uncertainty variables and thus to measure the impact of inflation uncertainty on contract duration. for example, early empirical work by christofides and wilton ( 1983 ) used a rolling regression technique to calculate inflation uncertainty. new techniques, such as autoregressive conditional heteroscedasticity ( arch ) models, now allow researchers to better construct uncertainty variables. fay and lavoie ( 2002 ). this refers to the uncertainty measure derived from an arch model, and expressed in terms of the standard deviation of inflation uncertainty. other measures of inflation uncertainty give different results. longer labour contracts is a savings in the resources dedicated to negotiation, or in other words, lower transactions costs. another interesting finding is that the proportion of cola clauses in private sector contracts has not changed much over the last decade, even though contract duration has increased. 44 once unions have bargained for such clauses, they appear reluctant to give them up, even if they are seldom triggered. unions, of course, bargain for more than just wages