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Nominal Contracting and Monetary Targets - Drifting into Indexation

Minford, Anthony Patrick Leslie, Nowell, E. and Webb, Bruce David 2003. Nominal Contracting and Monetary Targets - Drifting into Indexation. The Economic Journal 113 (484) , pp. 65-100. 10.1111/1468-0297.00085

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We look for a theoretical justification of nominal wage contracts in household diversification of risk. In a calibrated general equilibrium model we 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 raises wage protection but also reduces welfare in a world where productivity shocks are persistent, as both theory and our empirical results for the OCED suggest they are. This suggests that this central bank practice is due for review.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
ISSN: 14680297
Last Modified: 04 Jun 2017 01:46

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