Wage Indexation, Inflation Inertia, and the Cost of Disinflation

Javier G. Gómez-Pineda

Borradores de Economia

Number:

198

Published:

Friday, 1 February 2002

Classification JEL:

E1, E17, E52, E27, J30

Keywords:

Human capital agglomeration, Social returns, Private returns, Externalities, Uncertainty, Fiscal policy

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Wage increases based on past inflation increase inflation inertia and hence increase the cost of disinflation. Higher central bank credibility and a higher frequency of wage negotiations correspond to lower inflation inertia and a lower cost of disinflati