inflation, a finding that is at odds with the assumption of constant indexation parameters in most New-Keynesian DSGE models. We … response to aggregate shocks and monetary policy. We show that workers index wages to past inflation when output fluctuations … are primarily explained by technology and permanent inflation-target shocks, whereas they index to trend inflation when …

past inflation during the Great Inflation but not during the Great Moderation. However, most DSGE models assume fixed … monetary policy. We find that workers index their wages to past inflation when technology and permanent inflation-target shocks … drive output fluctuations; when aggregate demand shocks do, workers index to trend-inflation. In addition, workers' choices …