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Notes for a New Guide to Keynes (I): Wages, Aggregate Demand, and Employment

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  • Jordi Galí
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    Abstract

    I revisit the General Theory's discussion of the role of wages in employment determination through the lens of the New Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare improving.

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    File URL: http://research.barcelonagse.eu/tmp/working_papers/662.pdf
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    Bibliographic Info

    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 662.

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    Date of creation: Sep 2012
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    Handle: RePEc:bge:wpaper:662

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    Keywords: wage flexibility; monetary policy rules; employment stability;

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    1. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
    2. Jordi Galí & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Postwar U.S. Data?," IMF Working Papers 04/234, International Monetary Fund.
    3. Barnichon, Regis, 2010. "Productivity and unemployment over the business cycle," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1013-1025, November.
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