THE RELATION BETWEEN CONTRACT DURATION AND INFLATION UNCERTAINTY - FURTHER EVIDENCE

Only a few papers have examined the relationship between inflation unc ertainty and contract duration, and the results are mixed. Here the us ual specification is modified by using a relative measure of uncertain ty, including a dummy to test Danziger's (1988) conclusion that higher uncertainty about real factors increases contract duration, and inclu ding squared uncertainty to test Harris and Holmstrom's (1987) claim o f a U-shaped relationship. For the entire sample there is a robust neg ative relation between contract duration and inflation uncertainty. Ho wever, even with the above modifications there is little evidence of a ny relation in two-digit SIC samples.