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Monetary policy in the presence of asymmetric wage indexation

Author

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  • Pierre-Guillaume Méon
  • Giuseppe Diana
Abstract
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.

Suggested Citation

  • Pierre-Guillaume Méon & Giuseppe Diana, 2008. "Monetary policy in the presence of asymmetric wage indexation," ULB Institutional Repository 2013/8354, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/8354
    Note: SCOPUS: ar.j
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    More about this item

    Keywords

    E30; £61. J30; monetary policy; wage indexation;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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