Pattern Wage Bargaining and Long‐Term Exchange Rate Volatility

ABSTRACT National wage‐setting systems with pattern wage bargaining (PWB) were developed under fixed exchange rates. Under floating regimes, high exchange rate volatility interacts with PWB, creating complex wage‐price dynamics. Using Norway as a case, we model these dynamics under empirically relevant long‐term exchange rate fluctuations. Comparative statics show that, with one‐way causality from depreciation to wages, steady‐state inflation remains robust. Under two‐way causality, the steady state is altered, potentially shifting mean inflation and, in some cases, generating explosive wage–exchange rate dynamics. Simulations of calibrated dynamic PWB models illustrate these effects and provide insights relevant for policy design.