Monetary Policy in the Presence of Asymmetric Wage Indexation

By G. Diana, Pierre-Guillaume Méon. Southern Economic Journal, 2005

125 citations recorded by the source corpus.

This paper studies monetary policy in the presence of asymmetric wage indexation. It is found that 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, asymmetric wage indexation skews the distribution of output to the left, and can therefore be contractionary. It has ambiguous effects on expected inflation, on the volatility of output and inflation, and on expected welfare, relative to an equivalent symmetric indexation. Optimal symmetric inflation however always outperforms optimal asymmetric indexation.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/af5acce27931da08dcb01f0388c9f57e4eb396a7