Imported Materials Prices, Wage Policy, and Macroeconomic Stabilization
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NBER Working Paper No. 1254 (Also Reprint No. r0649)
Issued in October 1985
NBER Program(s): ITI IFM
This paper analyzes two simple wage rules that keep employment constant when there are shocks to the prices of imported materials. One rule ties nominal wages to the GNP deflator rather than the consumer price index. The second rule, followed by Japan after the second oil price shock, ties the real wage to real GNP. The paper shows the effects on output, real income, and other macroeconomic variables of choosing either rule in place of the real wage stability provided by conventional wage indexation.
Published: Canadian Journal of Economics, Vol. 18, No. 2, pp. 273-284, (May 1985).
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