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| Author: | Minford, P. Nowell, E. Webb, B. |
| Title: | Nominal contracting and monetary targets - drifting into indexation |
| Journal: | Economic Journal
2003 : JAN, VOL. 113:484, p. 65-100 |
| Index terms: | Monetary policy Contracts Equilibrium theory Stochastic processes Simulation Economic efficiency |
| Language: | eng |
| Abstract: | The authors look for a theoretical justification of nominal wage contracts in household diversification of risk. In a calibrated general equilibrium model they find from stochastic simulation that if both productivity and monetary shocks are temporary then optimal wage contracts are overwhelmingly nominal. The model suggests that the persistence in monetary shocks not only raise wage protection but also reduces welfare in a world productivity shocks are persistent, as both theory and the empirical results for the OECD suggest they are. |
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