Downward Nominal Wage Rigidity: The Implications From A New-Keynesian Model
AbstractWe study the determinants of Downward Nominal Wage Rigidity(DNWR) in the context of a new-Keynesian heterogeneous-agent model. Laborproductivity of agents is subject to perfectly insurable idiosyncratic shocks.Wage contracts are signed one period ahead and specify the minimum wagethat the firm should pay to each worker conditional on her future expectedmarginal product. The model predicts a simple structural equation: the degreesof DNWR are entirely determined by unexpected shocks to technology andmoney supply. We test this model's implication with data on the U.S. economy,and we find that the above two shocks can account for about 60% of variation inthe aggregate measures of DNWR.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-04.
Length: 28 pages
Date of creation: Feb 2006
Date of revision:
Publication status: Published by Ivie
Downward Nominal Wage Rigidity; New-Keynesian model;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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