An optimizing model of U.S. wage and price dynamics

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An optimizing model of U.S. wage and price dynamics

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Argia Sbordone

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Argia M Sbordone

Abstract

The objective of this paper is to provide an optimizing model of wage and price setting consistent with U.S. data. I first investigate the predictions of an optimizing labor supply model for the aggregate nominal wage, taking as given the evolution of prices and quantities. In this part I seek to determine whether a standard specification of households’ preferences over consumption and leisure is consistent with the data, and to what extent nominal rigidities in the wage setting process improve the fit with the data. Then I combine the evolution of wages predicted by this model with the evolution of prices predicted by staggered-price models to provide a model of the joint determination of prices and wages, given the evolution of real quantities. The paper thus supplies a “Phillips curve” specification that is consistent with intertemporal optimization and rational expectations.

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Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2002)
Issue (Month): Mar ()
Pages:
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Handle: RePEc:fip:fedfpr:y:2002:i:mar:x:3

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Keywords: Macroeconomics

Other versions of this item:

Paper
- Argia M. Sbordone, 2001. "An Optimizing Model of U.S. Wage and Price Dynamics," Departmental Working Papers 200110, Rutgers University, Department of Economics. [Downloadable!]
Software
- Ryo Kato, 2003. "Matlab code for Sbordone's estimation for a sticky price model," QM&RBC Codes 116, Quantitative Macroeconomics & Real Business Cycles. [Downloadable!]

References listed on IDEAS
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Other versions:
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Other versions:
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Argia M. Sbordone, 2001. "An Optimizing Model of U.S. Wage and Price Dynamics," Departmental Working Papers 200110, Rutgers University, Department of Economics. [Downloadable!]
Other versions:
- Argia Sbordone, 2002. "An optimizing model of U.S. wage and price dynamics," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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Other versions:
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Other versions:
- Marianne Baxter & Urban J. Jermann, 1999. "Household Production and the Excess Sensitivity of Consumption to Current Income," NBER Working Papers 7046, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October. [Downloadable!] (restricted)
Other versions:
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Other versions:
- Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Finance and Economics Discussion Series 93-17, Board of Governors of the Federal Reserve System (U.S.).
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Other versions:
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago. [Downloadable!]
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Other versions:
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Other versions:
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