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Unemployment as excess supply of labor: Implications for wage and price inflation

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  • Casares, Miguel

Abstract

The introduction of both market-clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the New Keynesian model. As a result, wage inflation dynamics are forward-looking and depend negatively on the rate of unemployment. Moreover, both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in Erceg et al. (2000), though with different slope coefficients. In an equal-volatility comparison, the model with unemployment conveys less price stickiness and more wage stickiness.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 2 (March)
Pages: 233-243

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Handle: RePEc:eee:moneco:v:57:y:2010:i:2:p:233-243

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Market-clearing wages Sticky wages Unemployment;

References

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Cited by:
  1. Miguel Casares & Antonio Moreno & Jesús Vázquez, 2010. "An Estimated New-Keynesian Model with Unemployment as Excess Supply of Labor," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1003, Departamento de Economía - Universidad Pública de Navarra.
  2. Rafael Wouters & Frank Smets & Jordi Gali, 2011. "Unemployment in an Estimated New Keynesian model," 2011 Meeting Papers 1451, Society for Economic Dynamics.
  3. Kevin X.D. Huang & Qinglai Meng, 2010. "Increasing Returns and Unsynchronized Wage Adjustment in Sunspot Models of the Business Cycle," Vanderbilt University Department of Economics Working Papers 1007, Vanderbilt University Department of Economics.

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