Examining Price-Wage Dynamics in a Small Open Economy: The Case of Uruguay
Author | : Mr. Pau Rabanal |
Publisher | : International Monetary Fund |
Total Pages | : 34 |
Release | : 2024-05-24 |
ISBN-10 | : 9798400275432 |
ISBN-13 | : |
Rating | : 4/5 (32 Downloads) |
Download or read book Examining Price-Wage Dynamics in a Small Open Economy: The Case of Uruguay written by Mr. Pau Rabanal and published by International Monetary Fund. This book was released on 2024-05-24 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent increase of inflation globally has led to a renewed interest in understanding the link between inflation and wages. In Uruguay, the presence of centralized wage bargaining and indexation practices raises the question as to what extent wage growth dynamics can make the response of inflation to shocks more persistent. We use a medium-scale DSGE model which incorporates indexation in the wage setting equation to analyze the interactions between wage setting behavior and other macroeconomic variables, as well as the role of monetary policy. The analysis suggests that wage indexation increases the persistence of the response of inflation to domestic and foreign shocks, it also affects the monetary policy transmission mechanism and the severity of the trade-offs faced by the central bank.