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Wage Stickiness and Unemployment Fluctuations: An Alternative Approach

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  • Miguel Casares

    ()
    (Departamento de Econom�a, Universidad P�blica de Navarra)

  • Antonio Moreno

    ()
    (Departamento de Econom�a, Universidad de Navarra)

  • Jesús Vázquez

    ()
    (Departamento de Fundamentos del An�lisis Econ�mico II, Universidad del Pa�s Vasco)

Abstract

Erceg, Henderson and Levin (2000, Journal of Monetary Economics) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using Bayesian econometric techniques, both models are estimated with U.S. quarterly data of the Great Moderation. Estimation results are similar and provide a good empirical fit, with the crucial difference that our proposal delivers unemployment fluctuations. Thus, second-moment statistics of U.S. unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.

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Bibliographic Info

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 04/09.

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Length: 37 pages
Date of creation: 13 Aug 2009
Date of revision:
Handle: RePEc:una:unccee:wp0409

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Web page: http://www.unav.es/facultad/econom

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Keywords: Wage Rigidity; Price Rigidity; Unemployment;

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Cited by:
  1. Miguel Casares & Antonio Moreno & Jesús Vázquez, 2012. "An Estimated New-Keynesian Model with Unemployment as Excess Supply of Labor," Faculty Working Papers 01/12, School of Economics and Business Administration, University of Navarra.

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