Hubert Kempf

Inflation and wage indexation with multiperiod contracts: A comment

Abstract In a recent paper, Spivak, Weinblatt and Zilberfarb claim that, when contracts are overlapping and uniformly distributed over time, indexation always increases the absolute value of inflation and its variability. However, it can be shown that this result depends on a peculiar and implausible assumption on the indexation scheme in this framework, i.e., that the wage in a sector is indexed on the price of the good produced in that sector. When wages are indexed on the general price level, it is found that the absolute value of inflation and its variability do not necessarily increase with the indexation degree.

Irregular staggered contracts and monetary policy

Taylors (1980) notion of staggered contracts has been widely recognized as an elegant and useful tool to modelize wage-setting procedures and to generate persistence in output and employment levels. In this paper, we present an extension of Taylors suggestion in which staggered contracts are irregular: this implies that the wage equation varies period after period recurrently and raises the issues of the non-convergence and the non-unicity of the corresponding reduced form. Then we show that a specific feedback-monetary policy may resolve this difficulty and induce a unique solution when explosive solutions are a priori forbidden. Such a monetary policy is formed by a ‘system of rules’, varying period after period recurrently.

Quasi-rational expectations

Abstract Using a convergence approach in decentralized models of the economy, it is shown that agents are able to form an expectation of an endogenous aggregate variable which is almost equal to the rational expectation, with minimal information only.

Dynamic properties of error correction models with a stochastic target series

Abstract This paper deals with error correction models for which the series of target values follow an ARIMA process. The objective is to specify conditions which will guarantee that the difference between the target values and the effective values is stationary of mean zero. The obtained conditions have the form of relations involving the parameters of the model. These relations are easy to verify in any particular case.