THE DEPENDENCY OF WAGE CONTRACTS ON MONETARY-POLICY

In response to the new-classical argument that anticipated monetary po licy is ineffective, one New-Keynesian rebuttal posits sticky wages st emming from long-term labor contracts. We argue here that such fixed-w age contracts may reflect stabilization policy itself. Using an illust rative quantitative model, implemented by a computer program that comp utes the game payoffs, we analyze wage-contract strategies that could arise in response to various monetary policy strategies.