Staggered contracts and business cycle persistence
AbstractStaggered price and staggered wage contracts are commonly viewed as similar mechanisms in generating persistent real effects of monetary shocks. In this paper, we distinguish the two mechanisms in a general equilibrium framework. We show that, although the dynamic price setting and the dynamic wage setting equations are alike, a key parameter governing persistence is linked to the underlying preferences and technologies in different ways. Under the staggered wage mechanism, an intertemporal smoothing incentive in labor supply creates a real rigidity that is absent under the staggered price mechanism. Consequently, the two have different implications on persistence. While the staggered price mechanism by itself is incapable of, the staggered wage mechanism has a great potential in generating persistence.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 127.
Date of creation: 1998
Date of revision:
Other versions of this item:
- Huang, K.X. & Liu, Z., 1999. "Staggered Contracts and Business Cycle Persistence," Papers 305, Minnesota - Center for Economic Research.
- Kevin Huang & Z. Liu, . "Staggered contracts and business cycle persistence," Working Papers 2000-08, Utah State University, Department of Economics.
- Kevin X. D. Huang & Zheng Liu, 1998. "Staggered Contracts and Business Cycle Persistence," Cahiers de recherche CREFE / CREFE Working Papers 105, CREFE, Université du Québec à Montréal.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-01-25 (All new papers)
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