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Imported Materials Prices, Wage Policy, and Macroeconomic Stabilization

Richard C. Marston, Stephen J. Turnovsky

NBER Working Paper No. 1254 (Also Reprint No. r0649)
Issued in December 1983
NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program

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.

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Document Object Identifier (DOI): 10.3386/w1254

Published: Canadian Journal of Economics, Vol. 18, No. 2, pp. 273-284, (May 1985). citation courtesy of

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