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A New Keynesian Model with Overtime Labor

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  • Joao Madeira

    (Department of Economics, University of Exeter)

Abstract

This paper extends the standard New Keynesian model by incorporating labor adjustment costs and overtime work. I show that labor frictions help reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level. The introduction of labor frictions affects the dynamic behavior of economic variables (particularly employment and inflation) and implies that firms marginal costs should be measured in overtime costs. Marginal costs measured in overtime hours are procyclical and are predicted by inflation as suggested by theory.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0815.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0815.

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Date of creation: 2008
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Handle: RePEc:exe:wpaper:0815

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Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Related research

Keywords: New Keynesian Phillips Curve; business cycle models; labor frictions; inflation dynamics.;

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Cited by:
  1. Joao Madeira, 2012. "Evaluating the Role of Firm-Specific Capital in New Keynesian models," Discussion Papers, Exeter University, Department of Economics 1204, Exeter University, Department of Economics.

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