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Nominal and real wage rigidities. In theory and in Europe

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  • Knell, Markus

Abstract

In this paper I study the relation between real wage rigidity (RWR) and nominal price and wage rigidity. I show that in a standard DSGE model RWR is mainly affected by the interaction of the two nominal rigidities and not by other structural parameters. The degree of RWR is, however, considerably influenced by the modelling assumption about the structure of wage contracts (Calvo vs. Taylor) and about other institutional characteristics of wage-setting (clustering of contracts, heterogeneous contract length, indexation). I use survey evidence on price- and wage-setting for 15 European countries to calculate the degrees of RWR implied by the theoretical model. The average level of RWR is broadly in line with empirical estimates based on macroeconomic data. In order to be able to also match the observed cross-country variation in RWR it is, however, essential to move beyond the country-specific durations of price and wages and to take more institutional details into account.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 36 (2013)
Issue (Month): C ()
Pages: 89-105

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Handle: RePEc:eee:jmacro:v:36:y:2013:i:c:p:89-105

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Inflation persistence; Real wage rigidity; Nominal wage rigidity; DSGE models; Staggered contracts;

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Citations

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Cited by:
  1. Ascari, Guido & Rossi, Lorenza, 2011. "Real wage rigidities and disinflation dynamics: Calvo vs. Rotemberg pricing," Economics Letters, Elsevier, vol. 110(2), pages 126-131, February.
  2. Markus Knell, 2010. "Nominal and Real Wage Rigidities. In Theory and in Europe," Working Papers 161, Oesterreichische Nationalbank (Austrian Central Bank).
  3. Juillard, Michel & Le Bihan, Herve & Millard, Stephen, 2013. "Non-uniform wage-staggering: European evidence and monetary policy implications," Bank of England working papers 477, Bank of England.
  4. Nicola Acocella & Laura Bisio & Giovanni Di Bartolomeo & Alessandra Pelloni, . "Labor market imperfections, real wage rigidities and financial shocks," Working Papers 80/11, Sapienza University of Rome, Metodi e modelli per l'economia, il territorio e la finanza MEMOTEF.
  5. Lukas Vogel & Werner Roeger & Bernhard Herz, 2013. "The Performance of Simple Fiscal Policy Rules in Monetary Union," Open Economies Review, Springer, vol. 24(1), pages 165-196, February.
  6. Vogel, Lukas, 2012. "Structural reforms, fiscal consolidation and external rebalancing in monetary union: A model-based analysis," Economic Modelling, Elsevier, vol. 29(4), pages 1286-1298.
  7. David Amirault & Paul Fenton & Thérèse Laflèche, 2013. "Asking About Wages: Results from the Bank of Canada’s Wage Setting Survey of Canadian Companies," Discussion Papers 13-1, Bank of Canada.
  8. Druant, Martine & Fabiani, Silvia & Kezdi, Gabor & Lamo, Ana & Martins, Fernando & Sabbatini, Roberto, 2012. "Firms' price and wage adjustment in Europe: Survey evidence on nominal stickiness," Labour Economics, Elsevier, vol. 19(5), pages 772-782.
  9. Jose Ignacio García Pérez & Victoria Osuna, 2011. "The effects of introducing a single open-ended contract in the Spanish labour market," Working Papers 11.07, Universidad Pablo de Olavide, Department of Economics.
  10. Mewael F. Tesfaselassie, 2014. "Credible Disinflation and Delayed Slumps under Real Wage Rigidity," Kiel Working Papers 1923, Kiel Institute for the World Economy.

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