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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

Related research

Keywords: Market-clearing wages Sticky wages Unemployment;

References

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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  14. Casey B. Mulligan, 2001. "Aggregate Implications of Indivisible Labor," NBER Working Papers 8159, National Bureau of Economic Research, Inc.
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  18. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
  19. Miguel Casares, 2007. "Firm-Specific or Household-Specific Sticky Wages in the New Keynesian Model?," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 181-240, December.
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Citations

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Cited by:
  1. Jordi Galí & Frank Smets & Rafael Wouters, 2011. "Unemployment in an Estimated New Keynesian Model," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 329-360 National Bureau of Economic Research, Inc.
  2. Huang, Kevin X.D. & Meng, Qinglai, 2012. "Increasing returns and unsynchronized wage adjustment in sunspot models of the business cycle," Journal of Economic Theory, Elsevier, vol. 147(1), pages 284-309.

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