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

Lunardelli, André (2009): Loss avoidance in nominal frames and fairness in downward nominal wage rigidity and disinflation.

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Abstract

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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