Wage Indexation, Inflation Inertia, and the Cost of Disinflation

Borradores de Economia
Number: 
198
Published: 
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