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Wage Contracts, Sticky Prices and Exchange Rate Volatility: Evidence from Nine Industrial Countries

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  • Jerome Fahrer

    (Reserve Bank of Australia)

Abstract

In this paper, I investigate the link between real wage rigidities, nominal wage and price rigidities, and nominal exchange rate volatility. Using a model of overlapping wage contracts and monopolistic price-setting, where prices are costly to change, I find sticky nominal prices and wages to be a feature of all the major industrialised countries. However, I also find real wage rigidities to be absent for most of these countries. In the face of rigidities to nominal wages and prices, flexibility in the real product wage comes about through the dynamics of prices, wages and exchange rates, and the indexation of wages to consumer prices.

Suggested Citation

  • Jerome Fahrer, 1990. "Wage Contracts, Sticky Prices and Exchange Rate Volatility: Evidence from Nine Industrial Countries," RBA Research Discussion Papers rdp9006, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9006
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    File URL: https://www.rba.gov.au/publications/rdp/1990/9006.html
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    Cited by:

    1. Philip Lowe, 1992. "The Impact of Real and Nominal Shocks on Australian Real Exchange Rates," RBA Research Discussion Papers rdp9201, Reserve Bank of Australia.

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