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Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification

  • Harald Uhlig

This paper analyzes the cost of disinflation under real wage rigidities in a micro-founded New Keynesian model. Unlike Blanchard and Galí (2007) who carried out a similar analysis in a linearized framework, we take non-linearities into account. We show that the results change dramatically, both qualitatively and quantitatively, for the steady states and for the dynamic adjustment paths. In particular, a disinflation implies a prolonged slump without any need for real wage rigidities.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282806777212260
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 2 (May)
Pages: 383-387

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:2:p:383-387
Note: DOI: 10.1257/000282806777212260
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  1. Burda, Michael C. & Fuchs-Schündeln, Nikola & Buch, Claudia M. & Sinn, Hans-Werner, 2006. "Factor reallocation in eastern Germany after reunification," Munich Reprints in Economics 19974, University of Munich, Department of Economics.
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