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Nominal Wage Rigidities in a New Keynesian Model with Frictional Unemployment

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Author Info

  • Bodart, Vincent

    ()
    (Université catholique de Louvain)

  • De Walque, Gregory

    ()
    (National Bank of Belgium)

  • Pierrard, Olivier

    ()
    (Central Bank of Luxembourg)

  • Sneessens, Henri R.

    ()
    (University of Luxembourg)

  • Wouters, Raf

    ()
    (National Bank of Belgium)

Abstract

In this paper, we propose a search and matching model with nominal stickiness à la Calvo in the wage bargaining. We analyze the properties of the model, first, in the context of a typical real business cycle model driven by stochastic productivity shocks and second, in a fully specified monetary DSGE model with various real and nominal rigidities and multiple shocks. The model generates realistic statistics for the important labor market variables.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2528.

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Length: 40 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2528

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Keywords: DSGE; search and matching; nominal wage rigidity; monetary policy;

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References

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  1. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(s1), pages 35-65, 02.
  2. Moyen, S. & Sahuc, J-G., 2004. "Incorporating Labour Market Frictions into an Optimising-Based Monetary Policy Model," Working papers, Banque de France 105, Banque de France.
  3. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Computing in Economics and Finance 2006, Society for Computational Economics 525, Society for Computational Economics.
  4. Christoffel, Kai & Linzert, Tobias, 2006. "The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics," Discussion Paper Series 1: Economic Studies 2006,11, Deutsche Bundesbank, Research Centre.
  5. Antonella Trigari, 2009. "Equilibrium Unemployment, Job Flows, and Inflation Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(1), pages 1-33, 02.
  6. Christoffel, Kai & Kuester, Keith & Linzert, Tobias, 2005. "The Impact of Labor Markets on the Transmission of Monetary Policy in an Estimated DSGE Model," IZA Discussion Papers 1902, Institute for the Study of Labor (IZA).
  7. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228 Elsevier.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
  9. Shigeru Fujita & Garey Ramey, 2005. "The dynamic Beveridge curve," Working Papers 05-22, Federal Reserve Bank of Philadelphia.
  10. Krause, Michael U. & Lubik, Thomas A., 2007. "On-the-job search and the cyclical dynamics of the labor market," Working Paper Series, European Central Bank 0779, European Central Bank.
  11. Keith Kuester, 2006. "Real Price and Wage Rigidities in a Model with Matching Frictions," 2006 Meeting Papers, Society for Economic Dynamics 546, Society for Economic Dynamics.
  12. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
  13. Marvin Goodfriend & Robert G. King, 2001. "The Case for Price Stability," NBER Working Papers 8423, National Bureau of Economic Research, Inc.
  14. Carl E. Walsh, 2005. "Labor Market Search, Sticky Prices, and Interest Rate Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 829-849, October.
  15. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1123-1175, 09.
  16. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
  17. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  18. Bodart, Vincent & Pierrard, Olivier & Sneessens, Henri R., 2006. "Calvo Wages in a Search Unemployment Model," IZA Discussion Papers 2521, Institute for the Study of Labor (IZA).
  19. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 112-32, March.
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Citations

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Cited by:
  1. Salem M. Abo-Zaid, 2009. "Sticky Wages, Incomplete Pass-Through and Inflation Targeting: What is the Right Index to Target?," EERI Research Paper Series EERI_RP_2009_23, Economics and Econometrics Research Institute (EERI), Brussels.
  2. Marianna Riggi, 2010. "Nominal And Real Wage Rigidities In New Keynesian Models: A Critical Survey," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 24(3), pages 539-572, 07.
  3. Christoffel, Kai & Costain, James & de Walque, Gregory & Kuester, Keith & Linzert, Tobias & Millard, Stephen & Pierrard, Olivier, 2009. "Inflation dynamics with labour market matching: assessing alternative specifications," Working Paper Series, European Central Bank 1053, European Central Bank.
  4. Galí, Jordi, 2010. "Monetary Policy and Unemployment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7771, C.E.P.R. Discussion Papers.
  5. Poilly, C. & Sahuc, J-G., 2008. "Welfare Implications of Heterogeneous Labor Markets in a Currency Area," Working papers, Banque de France 199, Banque de France.
  6. Jordi Galé, 2010. "Monetary Policy and Unemployment," Working Papers 435, Barcelona Graduate School of Economics.
  7. Marianna Riggi, 2007. "New Keynesian models with labor market rigidities: a critical survey," Working Papers, University of Rome La Sapienza, Department of Public Economics 102, University of Rome La Sapienza, Department of Public Economics.

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