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Time-dependent or state-dependent wage-setting? Evidence from periods of macroeconomic instability

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  • Sigurdsson, Jósef
  • Sigurdardottir, Rannveig

Abstract

Administrative data on monthly wages in Iceland during 1998–2010 provide new insight into nominal wage rigidity. Unlike the data used in previous work, ours have a higher frequency, minimal measurement error, and a long sample including a period of substantial macroeconomic instability. We find that the monthly frequency of nominal wage changes is 13 percent. Although nominal wage cuts are rare, their frequency rises following a large macroeconomic shock. Timing of wage changes is both time-dependent and state-dependent: we find evidence of synchronization of adjustment and contracts of fixed duration, but also that inflation and unemployment over the wage spell affect the timing of adjustment.

Suggested Citation

  • Sigurdsson, Jósef & Sigurdardottir, Rannveig, 2016. "Time-dependent or state-dependent wage-setting? Evidence from periods of macroeconomic instability," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 50-66.
    • Handle: RePEc:eee:moneco:v:78:y:2016:i:c:p:50-66
    DOI: 10.1016/j.jmoneco.2016.01.001
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