This paper reports the estimation and simulation of the Bernanke and Blanchard (2023) model on Belgian data. The model offers a consistent framework that ties together wage growth, inflation expectations and price inflation. It is used to study the surge and persistence of inflation in the...

This paper reports the estimation and simulation of the Bernanke and Blanchard (2023) model on Belgian data. The model offers a consistent framework that ties together wage growth, inflation expectations and price inflation. It is used to study the surge and persistence of inflation in the...

In 2022 inflation hit European economies in a severe way. To protect the purchasing power of households, EU Member States adopted a series of exceptional fiscal policy measures. In this paper, we turn our focus on wage indexation, a policy option that has been relatively less explored in the...

Belgium is one of a small group of euro area countries that maintains indexation of wages to inflation as part of its wage setting framework. With intensified price pressures since late 2020 driving inflation to record levels, the tension between compensating workers for purchasing power losses...

If the responses of wages – both private and public – and of pensions to an increase in inflation lead to second-round effects, this can make an inflationary shock more persistent, especially in the presence of automatic wage and pension indexation. This occasional paper presents an overview...

It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We...

Cost of living escalators are an important feature of North American labor contracts. This paper presents a measure of the response of index-linked wage increases to concurrent price increases for a sample of Canadian contracts, and then analyses this response in terms of a simple model of...

This paper considers the possible employment effects of reforming minimum-wage policy to incorporate indexation of the nominal minimum wage .The analysis assumes that both the demand for the labor services of minimum-wage workers and the setting of the nominal minimum wage rate under existing...

At the design of public pension systems, the designers frequently neglect that higher earners statistically live longer, and possibly also retire later. Since the first difference has recently been rising steeply, this negligence is less and less tolerable, especially with nonfinancial defined...

This paper investigates the effects of wage indexation on the time-consistent level of inflation. Departing from previous work on time-consistent policy, we study a structural model of the economy. Indexation reduces the cost of inflation, which is inflationary, and steepens the Phillips curve,...

This paper examines the desirability of wage indexation in an open economy subject to economic disturbances which change the terms of trade and raise the prices of imported goods. Two indexation rules are considered, the traditional form of indexation to the consumer price index and indexation...

Our paper seeks to provide an explanation for why the prevalence of COLA provisions and their characteristics vary widely across U.S. industries. We develop models of optimal risk sharing between a firm and union that allows us to investigate the determinants of a number of characteristics of...

We propose an easily computable measure called the Major Complexity Index (MCI) that captures the latent skills taught in different majors. By applying the Method of Reflections to the major-to-occupation network, we construct a scalar measure of the relative complexity of majors. Our measure...

This paper presents information on wage bargaining institutions, collected using a standardized questionnaire. Our data provide information from 1995 and 2006, for four sectors of activity and the aggregate economy, considering 23 European countries, plus the US and Japan. Main findings include...

This paper considers two alternative approaches to stabilizing an economy with firm-specific productivity disturbances. The first uses wage contracts tying wages in each firm to these disturbances as well as the price level. The second uses a tax on firms which modifies their supply behavior...

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...

The interdependence between the optimal degree of wage indexation and optimal monetary policy is analyzed for a small open economy under a variety of assumptions regarding: (i) relative information available to private agents and the stabilization authority; (ii) the perceived nature of the...

This paper explores time variation in the dynamic effects of technology shocks on U.S. output, prices, interest rates as well as real and nominal wages. The results indicate considerable time variation in U.S. wage dynamics that can be linked to the monetary policy regime. Before and after the...

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are...

This paper evaluates the extent of downward nominal and real wage rigidity for different categories of workers and firms using the methodology recently developed by the International Wage Flexibility Project (Dickens and Goette, 2006). The analysis is based on an administrative data set on...

A sample of 11885 wage agreements, reached in the Canadian unionized sector during 1976-2000, a period of high as well as exceptionally low inflation and substantial fluctuations in nominal and real uncertainty, is used to study the determinants of key provisions of contracts such as their...

It is an open question whether and how indexed wage contracts reduce welfare or raise average inflation. This paper analyzes the impact of indexed wage contracts on inflation and social welfare in a Barro-Gordon model with discretionary monetary policy by endogenizing social costs of indexation....

Membership in a monetary union implies stronger incentives for nominal wage flexibility in the form of wage indexation and shorter contract length than nonmembership. For example, entry into a monetary union may cause a move from a non-indexation to an indexation equilibrium. But more wage...

This paper develops a unified framework for the analysis of wage indexation and monetary policy in the presence of supply shocks. We first present simple formulae for the optimal wage indexation rule and for the optimal money supply rule. In order to set the stage for an evaluation of departures...

Using an option pricing framework, we extend Stock and Wise (1990)’s and Fraser, Jennings, and King (2000)’s into a new model that shows how different forms of price indexing alter the calculation of the present values of Social Security benefits. We find that, under the current method (wage...

Cost-of-Living-Adjustment (COLA) coverage figures suggest a time variation in the degree of wage indexation. In spite of this observation, most current literature conveniently assume a constant degree of indexation as this variable is not directly observable. This study intends to empirically...

In this paper, we provide evidence on the existence and evolution of downward real and nominal wage rigidities in Mexico in the period 1996-2011, which was characterized by a reduction in the level and volatility of inflation. Our results suggest that, throughout the period, a larger fraction of...

Empirical estimations suggest heavy-tailed unconditional distributions for inflation, the output gap and the interest rate. However, standard NK models used in policy analysis imply normal distributions for these variables. In this study, we propose a model which replicates the above mentioned...

The house price in Hong Kong is well-known to be "unaffordable." This paper argues that the commonly used house price-to-income ratio may be misleading in an economy with almost half of the population living in either public rental housing or subsidized ownership. Moreover, we re-focus on the...

We study the distributional effect of a wage indexation mechanism - the Scala Mobile (SM) - that heavily compressed the distribution of Italian wages during the 1970s and 1980s. The SM imposed large real wage increases at the bottom of the distribution and was essentially irrelevant for...

Empirical and institutional evidence finds considerable time variation in the degree of wage indexation to past inflation, a finding that is at odds with the assumption of constant indexation parameters in most New-Keynesian DSGE models. We build a DSGE model with endogenous wage indexation in...

We estimate a New Keynesian wage Phillips curve for a panel of 24 OECD countries, and allow the degree of wage indexation to past inflation to vary according to the monetary policy regime. We find that the extent of wage indexation is significantly lower in an inflation targeting regime, in...

At the design of public pension systems, the designers frequently neglect that higher earners statistically live longer, and possibly also retire later. Since the first difference has recently been rising steeply, this negligence is less and less tolerable, especially with nonfinancial defined...

In this paper, we undertake empirical analysis to understand U.S. wage behavior since thebeginning of the new millennium. At the macroeconomic level, we find that aproductivity-augmented Phillips curve model explains the data fairly well. The modelreveals that the upward pressure on wage growth...

In this paper, we undertake empirical analysis to understand U.S. wage behavior since the beginning of the new millennium. At the macroeconomic level, we find that a productivity-augmented Phillips curve model explains the data fairly well. The model reveals that the upward pressure on wage...

Empirical and institutional evidence finds considerable time variation in the degree of wage indexation to past inflation, a finding that is at odds with the assumption of constant indexation parameters in most New-Keynesian DSGE models. We build a DSGE model with endogenous wage indexation in...

Gray and Benassy analysed the optimal wage indexation choice for representative agents and labor unions when monetary or/and real shocks are generated by a symmetric distribution. Here their analysis is extended to the more relevant choice for firm owners. In general, the probability of...

Examines the evolution of the cyclicality of real wages and employment in four Latin American economies: Brazil, Chile, Colombia and Mexico, during the period 1980-2010. Wages are highly pro-cyclical during the 1980s and early 1990s, a period characterized by high inflation. As inflation...