Journal Article

The Welfare Cost of Nominal Wage Contracting

Jang-Ok Cho, Thomas F. Cooley and Louis Phaneuf

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 64, issue 3, pages 465-484
Published in print July 1997 | ISSN: 0034-6527
Published online July 1997 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.2307/2971724
The Welfare Cost of Nominal Wage Contracting

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We use a dynamic general equilibrium model to obtain quantitative estimates of the welfare cost of nominal wage contracting. We find that the welfare cost of such contracts can vary quite a lot depending on the degree of indexation, the size and persistence of monetary shocks and the contract length. The size and persistence of technology shocks do not affect the welfare cost significantly. The elasticity of labour supply is important for the welfare cost. If the labour supply elasticity is small the welfare cost of nominal wage contracts can be substantial.

Journal Article.  0 words. 

Subjects: Economics

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