WAGE INDEXATION AND GOVERNMENT INTERVENTION UNDER PERFECT INFORMATION

The paper examines endogenous indexation in a setting in which the mon etary authorities, in minimizing a social loss function with employmen t and inflation as arguments, are able to react instantaneously to vel ocity and productivity shocks. Ln this context a symmetric Mash equili brium in which all firms set their indexation parameter at unity is id entified. This equilibrium is inefficient but, we argue, is unlikely t o be attained in practice. However, no alternative equilibria are defi ned unless bounds are placed upon the degree of indexation which agent s may adopt.