Loss avoidance in nominal frames and fairness in downward nominal wage rigidity and disinflation

This paper proposes a more general definition of loss avoidance, relates it to fairness and applies it to the labor market. By influencing judgments about what is a fair wage readjustment, it can lead to coordination failures, generating downward nominal wage rigidity (DNWR) and disinflation costs even with common knowledge of credible policies. This suggests that policies with good frames, including inflation targeting, can mitigate the sacrifice ratio.

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Year of publication:	2009-09-21
Authors:	Lunardelli, André
Institutions:	Volkswirtschaftliche Fakultät, Ludwig-Maximilians-Universität München
Subject:	loss avoidance \| fair wage effort hypothesis \| nominal frame \| higher order beliefs \| Keynesian beauty contest \| Phillips curve \| inflation inertia \| disinflation \| downward nominal wage rigidity

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Extent:	application/pdf
Series:	MPRA Paper.
Type of publication:	Book / Working Paper
Classification:	D03 - Behavioral Economics; Underlying Principles ; E32 - Business Fluctuations; Cycles ; E31 - Price Level; Inflation; Deflation ; E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; C72 - Noncooperative Games ; J30 - Wages, Compensation, and Labor Costs. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008615623