Description

The purpose of this paper is twofold. First, we review the history of indexation in Chile since 1938. We focus on interpreting indexation in the historical, political, and economic context of different stages of Chilean economic development. Second, we analyze the experience of a selected group of countries to answer three questions: How do wage indexation and inflation relate? what happens to the real exchange rate and inflation when the nominal exchange rate is indexed? and what is the experience with nominalization in the labor markets? The most important conclusions are that wage indexation does not automatically appear with an inflation boom; that periods of wage or exchange rate indexation present grater inflationary levels, volatility and persistence; and that nominalization experiences have happened due to the necessity to cut real wages to support competitiveness or due to unemployment, and/or the necessity to limit inflationary inertia as part of a stabilization plan.