Working Paper: NBER ID: w2042
Authors: Stephen J. Turnovsky
Abstract: 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 disturbances impinging on the economy. The distinctions between: (a) unanticipated and anticipated disturbances, and (b) permanent and transitory disturbances, are emphasized. The extent to which stabilization is achieved is shown to depend upon the nature of the disturbances and the available information. The policy redundancy issue is emphasized, implying that optimal rules can frequently be specified in many equivalent ways.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage indexation (J38) | output stability (E23) |
| unanticipated change in prices (E31) | output stability (E23) |
| transitory disturbances (E32) | frictionless output level (F16) |
| permanent disturbances (Q54) | stabilization effectiveness (E63) |
| wage indexation (J38) | monetary policy effectiveness (E52) |