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MACROECONOMICS
average of the current contract wage (
X
t
) signed in period
t
and previous
contract wages signed in period
t
-
1 (
X
t
-
1
),
or,
w
t
=
1
__
2
(
X
t
-
1
+
X
t
)
where
X
i
is the contract wage settlement signed in period
i
. The contract wage
set in a period need not be a function of just currently observed variables. If
agents are forward looking, they will estimate the average wage in the next
period as well as the tightness of the labour market as given by future unem-
ployment. If workers expect wage settlements in the next period
t
+
1 to be
moderate, they will also attempt to ...
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