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Staggered Wages and Disinflation Dynamics: What Can More Microfoundations Tell Us?

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  • Ascari, Guido
  • Rankin, Neil

Abstract

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. As in John Taylor’s approach, the money wage is fixed for two periods, but in our model it is also chosen according to intertemporal optimization, as are consumption and money demand. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle recently raised by Laurence Ball, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1763.

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Date of creation: Dec 1997
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Handle: RePEc:cpr:ceprdp:1763

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Keywords: Disinflation; dynamic general equilibrium; staggered wages;

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Cited by:
  1. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 383-400, September.
  2. Özge Senay, . "Disinflation Dynamics in an Open Economy General Equilibrium Model," Discussion Papers 98/15, Department of Economics, University of York.

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