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Nominal wage rigidities in a new Keynesian model with frictional unemployment

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Author Info

  • Vincent Bodart

    (Department of Economics, Université catholique de Louvain)

  • Gregory de Walque

    (National Bank of Belgium, Research department
    Department of Economics, University of Namur)

  • Olivier Pierrard

    ()
    (Department of Economics, Université catholique de Louvain
    Banque centrale du Luxembourg)

  • Henri R. Sneessens

    (Department of Economics, Université catholique de Louvain)

  • Raf Wouters

    (National Bank of Belgium, Research department)

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 National Bank of Belgium in its series Working Paper Research with number 97.

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Length: 45 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:nbb:reswpp:200610-9

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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 Gali, 2005. "Real Wage Rigidities and the New Keynesian Model," NBER Working Papers 11806, National Bureau of Economic Research, Inc.
  2. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  3. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  4. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228 Elsevier.
  5. Krause, Michael & Lubik, Thomas A., 2007. "On-the-job search and the cyclical dynamics of the labor market," Discussion Paper Series 1: Economic Studies 2007,15, Deutsche Bundesbank, Research Centre.
  6. Shigeru Fujita & Garey Ramey, 2005. "The dynamic Beveridge curve," Working Papers 05-22, Federal Reserve Bank of Philadelphia.
  7. Christoffel, Kai & Linzert, Tobias, 2005. "The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics," Working Paper Series 0556, European Central Bank.
  8. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, 02.
  9. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  10. 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).
  11. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  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. Trigari, Antonella, 2004. "Equilibrium unemployment, job flows and inflation dynamics," Working Paper Series 0304, European Central Bank.
  15. Moyen, Stephane & Sahuc, Jean-Guillaume, 2005. "Incorporating labour market frictions into an optimising-based monetary policy model," Economic Modelling, Elsevier, vol. 22(1), pages 159-186, January.
  16. Keith Kuester, 2006. "Real Price and Wage Rigidities in a Model with Matching Frictions," 2006 Meeting Papers 546, Society for Economic Dynamics.
  17. 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.
  18. Vincent Bodart & Olivier Pierrard & Henri R. Sneessens, 2005. "Calvo Wages in a Search Unemployment Model," DNB Working Papers 068, Netherlands Central Bank, Research Department.
  19. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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Citations

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Cited by:
  1. Abo-Zaid, Salem, 2009. "Sticky Wages, Incomplete Pass-Through and Inflation Targeting: What is the Right Index to Target?," MPRA Paper 13177, University Library of Munich, Germany.
  2. Jordi Galé, 2010. "Monetary Policy and Unemployment," Working Papers 435, Barcelona Graduate School of Economics.
  3. Galí, Jordi, 2010. "Monetary Policy and Unemployment," CEPR Discussion Papers 7771, C.E.P.R. Discussion Papers.
  4. Kai Christoffel & James Costain & Gregory de Walque & Keith Kuester & Tobias Linzert & Stephen Millard & Olivier Pierrard, 2009. "Inflation dynamics with labour market matching: assessing alternative specifications," Working Papers 09-6, Federal Reserve Bank of Philadelphia.
  5. Marianna Riggi, 2010. "Nominal And Real Wage Rigidities In New Keynesian Models: A Critical Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 24(3), pages 539-572, 07.
  6. Poilly, C. & Sahuc, J-G., 2008. "Welfare Implications of Heterogeneous Labor Markets in a Currency Area," Working papers 199, Banque de France.

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