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An efficiency wage - imperfect information model of the aggregate supply curve

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  • Campbell, Carl M.

Abstract

This study derives a reduced-form equation for the aggregate supply curve from a model in which firms pay efficiency wages and workers have imperfect information about average wages at other firms. If specific assumptions are made about workers’ expectations of average wages and about aggregate demand, the model predicts how the aggregate demand and supply curves shift and how output and prices adjust in response to demand shocks and supply shocks. The model also provides an alternative explanation for Lucas’ (1973) finding that the AS curve is steeper in countries with greater inflation variability.

Suggested Citation

  • Campbell, Carl M., 2009. "An efficiency wage - imperfect information model of the aggregate supply curve," MPRA Paper 15296, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:15296
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    File URL: https://mpra.ub.uni-muenchen.de/15296/2/MPRA_paper_15296.pdf
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    References listed on IDEAS

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    14. Cover, James Peery & Enders, Walter & Hueng, C. James, 2006. "Using the Aggregate Demand-Aggregate Supply Model to Identify Structural Demand-Side and Supply-Side Shocks: Results Using a Bivariate VAR," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 777-790, April.
    15. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 517-531.
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    Cited by:

    1. Campbell, Carl M., 2014. "The formation of wage expectations in the effort and quit decisions of workers," Economic Modelling, Elsevier, vol. 42(C), pages 313-322.
    2. Andrea Vaona, 2015. "The price-price Phillips curve in small open economies and monetary unions: theory and empirics," International Economics and Economic Policy, Springer, vol. 12(2), pages 281-307, June.
    3. Campbell, Carl, 2011. "Efficiency wage setting, labor demand, and Phillips curve microfoundations," MPRA Paper 34121, University Library of Munich, Germany.
    4. Campbell III, Carl M., 2010. "Deriving the wage-wage and price-price Phillips curves from a model with efficiency wages and imperfect information," Economics Letters, Elsevier, vol. 107(2), pages 242-245, May.

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    More about this item

    Keywords

    Aggregate supply curve; efficiency wages; imperfect information;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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