IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/v26y2026i1p45-76n1001.html

Downward Wage Rigidity at the Zero Lower Bound

Author

Listed:
  • Ji Yangyang

    (Central University of Finance and Economics, Beijing, China)

  • Xiao Wei

    (Department of Economics, Binghamton University, Binghamton, NY 13902, USA)

Abstract

This paper examines the role of downward nominal wage rigidity in deep recessions in a New Keynesian framework. We show that when the economy is in a liquidity trap and the nominal interest rate is constrained by the zero lower bound (ZLB), downward nominal wage rigidity reduces – rather than amplifies – the government spending multiplier. Furthermore, the multiplier does not rise with the duration of the ZLB. These findings depart from much of the conventional theoretical literature but help reconcile the gap between theory and empirical evidence.

Suggested Citation

  • Ji Yangyang & Xiao Wei, 2026. "Downward Wage Rigidity at the Zero Lower Bound," The B.E. Journal of Macroeconomics, De Gruyter, vol. 26(1), pages 45-76.
    • Handle: RePEc:bpj:bejmac:v:26:y:2026:i:1:p:45-76:n:1001
    DOI: 10.1515/bejm-2024-0123
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejm-2024-0123
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejm-2024-0123?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:26:y:2026:i:1:p:45-76:n:1001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.