This paper relates the volatility of the trade-weighted effective
real exchange rate to the degree of trade openness of an economy. The
theoretical part presents an intertemporal monetary model of a small
open economy with nominal rigidities. Both monetary and aggregate supply
shocks are shown to produce (ceteris paribus) smaller real exchange rate
movements if the country is more open to foreign trade. Empirical evidence
on a cross section of forty-eight countries confirms this relationship:
Differences in trade openness explain a large part of the cross-country
variation in the volatility of the effective real exchange rate.

https://www.jstor.org/stable/pdfplus/3270734.pdf

Real Exchange Rate Volatility and Economic Openness: Theory and Evidence

An analysis of whether inflation facilitates adjustments to shocks or distorts relative prices, examining the wage-setting process across a panel of occupations and employers and finding that the costs of inflation may rise more rapidly than its benefits beyond quite modest rates of increase in the price level.

/pdf/the-effects-of-inflation-on-wage-adjustments-in-firm-level-13vnxxvath.pdf

The Effects of Inflation on Wage Adjustments in Firm-Level Data: Grease or Sand?

An effort to distinguish inflations distortionary effects from its facilitation of adjustments to shocks when wages are rigid downward. It uses the following identification strategy: inflation-induced deviations among employers mean wage changes represent unintended intramarket distortions (sand), while inflation-induced, interoccupational wage changes reflect adjustments that might have been prevented by nominal wage rigidity (grease).

Identifying inflations grease and sand effects in the labor market

This paper studies the effects of inflation on wage changes made by firms in a unique thirty-seven-year panel of occupations and employers drawn from the Federal Reserve Bank of Cleveland Community Salary Survey (CSS). Our analysis first identifies two relative prices embedded in wage changes and, second, draws inferences about the costs and benefits of inflation from the adjustments in these relative prices. Typically, firms manage employer-wide wage adjustments (controlling for occupational wage changes) separately from their interoccupational wage changes (controlling for employer wage hikes). Consistent with this observation, we identify large independent employer and occupational components of wage changes in the CSS. Although there is no a priori reason why these adjustments should be altered by inflation (when the average change is subtracted out), we find that variation in both of these terms rises as inflation grows. Guided by institutional wage-setting procedures, we view employers' mean wage hikes as subject to intra-market variations in the speed of adjustment to inflation and forecasting errors. In contrast, we argue that occupational wage movements include a higher concentration of inter-market relative price adjustments. This simple dichotomy, whose robustness we attempt to test, yields two policy-oriented results. First, higher inflation and labor productivity appear to increase the rate of occupational wage adjustments ("grease"), although these potential benefits taper off after inflation rises to about 4 percent (assuming 1.5 percent average growth of labor productivity.) Second, potentially inefficient variations in employer wage adjustments ("sand") continue to mount until inflation reaches rates of 7 to 10 percent (again assuming productivity growth of 1.5 percent).

The effects of inflation on wage adjustments in firm-level data: grease or sand?

The level of real wages is one of the key variables-perhaps the key variable-in the economy. Understanding the processes by which wage levels are determined has proved a major task for economists, both theoretical and applied. Much of the effort has taken place within the context of the 'NAIRU' (or non-accelerating inflation rate of unemployment)paradigm. According to this view, the long-run or 'natural' rate of unemployment is determined by the supply side. This would include incentives to work provided by the social security system as well as demographic factors-in Friedman's celebrated phrase, it is the rate that is 'ground out by the Walrasian system of equations' (Friedman, 1968).

The role of profitability and industrial wages in firm level wage determination

. The paper compares three different types of theoretical explanation of ‘sticky’wages. They are implicit contracts, efficiency wage models and insider/outsider models. It then reconsiders Keynes’rationale for sticky wages, which focuses on relative wage issues. Finally, the paper considers possible directions for future research.

Theoretical foundations for sticky wages

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Theoretical foundations for sticky wages