The relation between contract duration and inflation uncertainty: Further evidence

Only a few papers have examined the relationship between inflation uncertainty and contract duration, and the results are mixed. Here the usual specification is modified by using a relative measure of uncertainty, including a dummy to test Danziger's (1988) conclusion that higher uncertainty about real factors increases contract duration, and including squared uncertainty to test Harris and Holmstrom's (1987) claim of a U-shaped relationship. For the entire sample there is a robust negative relation between contract duration and inflation uncertainty. However, even with the above modifications there is little evidence of any relation in two-digit SIC samples.