Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures

33 Pages Posted: 10 Jul 2007 Last revised: 1 Aug 2022

See all articles by Stephen J. Turnovsky

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 1986

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.

Suggested Citation

Turnovsky, Stephen J., Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures (October 1986). NBER Working Paper No. w2042, Available at SSRN: https://ssrn.com/abstract=344833

Stephen J. Turnovsky (Contact Author)

University of Washington - Institute for Economic Research ( email )

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