The Impact of Reference Norms on Inflation Persistence When Wages are Staggered

66 Pages Posted: 24 Apr 2009

See all articles by Markus Knell

Markus Knell

Austrian National Bank - Economic Studies Division; University of Zurich

Alfred Stiglbauer

Austrian National Bank

Date Written: April 24, 2009

Abstract

In this paper we present an extension of the Taylor model with staggered wages in which wage-setting is also influenced by reference norms (i.e. by benchmark wages). We show that reference norms can considerably increase the persistence of inflation and the extent of real wage rigidity but that these effects depend on the definition of reference norms (e.g. how backward-looking they are) and on whether the importance of norms differs between sectors. Using data on collectively bargained wages in Austria from 1980 to 2006 we show that wage-setting is strongly influenced by reference norms, that the wages of other sectors seem to matter more than own past wages and that there is a clear indication for the existence of wage leadership (i.e. asymmetries in reference norms).

Keywords: Inflation Persistence, Real Wage Rigidity, Staggered Contracts, Wage Leadership

JEL Classification: E31, E32, E24, J51

Suggested Citation

Knell, Markus and Stiglbauer, Alfred, The Impact of Reference Norms on Inflation Persistence When Wages are Staggered (April 24, 2009). ECB Working Paper No. 1047, Available at SSRN: https://ssrn.com/abstract=1386924 or http://dx.doi.org/10.2139/ssrn.1386924

Markus Knell (Contact Author)

Austrian National Bank - Economic Studies Division ( email )

POB 61
Vienna, A-1011
Austria
+43 1 404 20 7205 (Phone)
+43 1 404 20 7299 (Fax)

HOME PAGE: http://www.oenb.at/

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Alfred Stiglbauer

Austrian National Bank ( email )

Otto-Wagner Platz 1
A-1011 Vienna
Austria

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