Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 1998:3: MONETARY REGIMES AND ENDOGENOUS WAGE CONTRACTS: SWEDEN 1908-1995

Klas Fregert () and Lars Jonung ()
Additional contact information
Klas Fregert: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Lars Jonung: Department of Economics, Stockholm School of Economics, Postal: Department of Economics, Stockholm School of Economics, Box 6501, S-113 83 Lund, Sweden

Abstract: We examine Gray´s theory of endogenous length of wage contracts and inflation indexation, using a uniquely long data set of blue-collar worker collective agreements in Sweden 1908-1995. Volatile monetary regimes, i. e. regimes with large macroeconomic uncertainty, are associated with short length and inflation indexed contracts. We also find inertia in changes in contract characteristics to changes in the regime. The findings support the Lucas critique, but cautions against simple divisions of time series in different regimes wherein agents' decision rules are assumed constant.

Keywords: Monetary regime; contract length; wage indexation; Lucas critique

JEL-codes: E30; E42; E65

30 pages, First version: June 1, 1998. Revised: April 21, 1999.

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