Indexing Policy in Historical and Doctrinal Perspective: A Survey of Recent Experience and Theoretical Development

Abstract

This paper surveys recent experience with indexation as well as the evolving theoretical developments during the last twelve years.

The first part concentrates on recent experiences, first in those countries with long-term indexation experience, then in those where indexation was reduced or terminated (the Southern Cone Countries as well as Finland and Iceland), and where indexing has been practiced under conditions of moderate inflation.

The second part summarizes recent theoretical developments on indexation, both in closed and in open economies. The focus in on the determination of the "optimal" indexing arrangement, and the restrictions which optimal indexing policies place on exchange rate and monetary policy. It evaluates the usefulness of these models, in terms of their ability to explain recent experience as well as to offer policy recommendations for current problems.