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| Author: | Cho, J-O. Cooley, T. F. Phaneuf, L. |
| Title: | The welfare cost of nominal wage contracting |
| Journal: | Review of Economic Studies
1997 : JUL, VOL. 64(3):220, p. 465-484 |
| Index terms: | WELFARE COSTS PAY CONTRACTS LABOUR SUPPLY |
| Language: | eng |
| Abstract: | This paper presents quantitative estimates of the welfare cost of nominal wage contracts derived in the setting of a dynamic general equilibrium model. The welfare cost can vary quite a bit depending on the degree of indexation, the size of money supply uncertainty, and the length of contracts. The size and persistence of real shocks don't affect the welfare cost very much. For any plausible environment the welfare cost of nominal wage contracting are quite small. The results depend critically on the elasticity of labor supply. The welfare costs can be substantial if the elasticity of labor supply becomes very low. |
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