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REFERENCE NORMS, STAGGERED WAGES, AND WAGE LEADERSHIP: THEORETICAL IMPLICATIONS AND EMPIRICAL EVIDENCE

Authors

  • Markus Knell,

    1. Oesterreichische Nationalbank, Austria
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  • Alfred Stiglbauer

    1. Oesterreichische Nationalbank, Austria
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    • The authors thank two anonymous referees and an associate editor of this journal for their detailed and very helpful comments. In addition we are also grateful to Nils Gottfries, Steinar Holden, Andrew Levin, participants of the Wage Persistence Network of the ESCB, and of various seminars for useful remarks and suggestions. A previous version of this article circulated under the title “The Impact of Reference Norms on Inflation Persistence When Wages Are Staggered.” The views expressed in this article do not necessarily reflect those of the Oesterreichische Nationalbank. Please address correspondence to: Markus Knell, Economic Studies Division, OeNB, Otto-Wagner Plaza 3, POB-61 A-1011, Vienna, Austria. Phone: +43-1 404 20 7218; Fax: +43-1 316 56 7218. E-mail: Markus.Knell@oenb.at.


  • Manuscript received March 2009; revised April 2010.

Abstract

This article presents an extension of the Taylor model with staggered wages in which wage setting is also influenced by reference norms. We show that reference norms can considerably increase the persistence of inflation but that the size of this effect depends on the exact definition (e.g., external vs. internal, symmetric vs. asymmetric norms). Using data on collectively bargained wages in Austria from 1980 to 2006 we show that wage setting is strongly influenced by reference norms, that external norms seem to matter more than internal norms, and that there is a clear indication for the existence of wage leadership (asymmetric norms).

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