Optimal Wage Indexation and Monetary Policy in an Economy with Imported Raw Materials
Author: Gikas A. Hardouvelis
Journal: Journal of International Money and Finance (1987),6. 419-432
Abstract: An economy’s openness from the input side has importnant effects on the optimal design of its macroeconomic policies. Given the exchange rate regime, the larger the share of imported raw materials in domestic production, the smaller the optimal degree of wage indexation to unanticipated inflation. Alternatively, given the wage indexation parameter, the larger the share of imported raw materials in domestic production, the smaller the optimal degree of foreign exchange intervention by the monetary authority (the more flesible the exchange rate).
Download Optimal Wage Indexation and Monetary Policy in an Economy with Imported Raw Materials pdf