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Staggered wages and output dynamics under disinflation

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  • Ascari, Guido
  • Rankin, Neil

Abstract

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. The money wage is fixed for two periods, and is chosen according to intertemporal optimization. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump.
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  • Ascari, Guido & Rankin, Neil, 2002. "Staggered wages and output dynamics under disinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 653-680, April.
    • Handle: RePEc:eee:dyncon:v:26:y:2002:i:4:p:653-680
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    Cited by:

    1. Saborowski, Christian, 2010. "Inflation targeting as a means of achieving disinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 34(12), pages 2510-2532, December.
    2. John Fender & Neil Rankin, 2006. "Disinflation in an Open-Economy Staggered-Wage DGE Model: Exchange-Rate Pegging, Booms and the Role of Preannouncement," CDMA Working Paper Series 200610, Centre for Dynamic Macroeconomic Analysis.
    3. Rafael Gerke & Jens Rubart, 2006. "The Role Of Money Demand In A Business Cycle Model With Staggered Wage Contracts," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 52-72, May.
    4. Jean-Pascal Bénassy, 2006. "Dynamic models with non clearing markets," Working Papers halshs-00590433, HAL.
    5. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2008. "Long-run inflation-unemployment dynamics: The Spanish Phillips curve and economic policy," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 279-300.
    6. John Fender & Neil Rankin, 2006. "On the (Non)Equivalence of Money- and Exchange-Rate-Based Disinflation," EcoMod2006 272100026, EcoMod.
    7. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, vol. 21(1), pages 1-32, March.
    8. Richard Mash, 2003. "New Keynesian Microfoundations Revisited: A Calvo-Taylor-Rule-of-Thumb Model and Optimal Monetary Policy Delegation," Economics Series Working Papers 174, University of Oxford, Department of Economics.
    9. Mash, Richard, 2002. "New Keynesian Microfoundations Revisited: A Generalised Calvo-Taylor Model and the Desirability of Inflation vs. Price Level Targeting," Royal Economic Society Annual Conference 2002 138, Royal Economic Society.
    10. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2008. "Long-run inflation-unemployment dynamics: The Spanish Phillips curve and economic policy," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 279-300.
    11. Marika Karanassou & Dennis J. Snower, 2002. "An Anatomy of the Phillips Curve," Working Papers 478, Queen Mary University of London, School of Economics and Finance.
    12. John Fender & Neil Rankin, 2003. "A Small Open Economy with Staggered Wage Setting and Intertemporal Optimization: The Basic Analytics," Manchester School, University of Manchester, vol. 71(4), pages 396-416, July.
    13. Snower, Dennis & Karanassou, Marika & Sala, Hector, 2003. "The European Phillips Curve: Does the NAIRU Exist?," CEPR Discussion Papers 4102, C.E.P.R. Discussion Papers.
    14. Guido Ascari, 2004. "Staggered Prices and Trend Inflation: Some Nuisances," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 642-667, July.
    15. Jean-Pascal Bénassy, 2005. "Competitiveness, market power and price stickiness: A paradox and a resolution," Working Papers halshs-00590559, HAL.
    16. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, September.
    17. Trabandt, Mathias, 2003. "Sticky Information vs. Sticky Prices : A Horse Race in a DSGE Framework," SFB 373 Discussion Papers 2003,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    18. Merkl, Christian, 2013. "Disinflationary booms?," Economics Letters, Elsevier, vol. 121(1), pages 105-109.
    19. Darius, Reginald, 2010. "The macroeconomic effects of monetary and fiscal policy in a small open economy: Does the exchange rate regime matter?," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1508-1528, December.
    20. Ascari, Guido & Merkl, Christian, 2007. "Real wage rigidities and the cost of disinflations: A comment on Blanchard and Galí," Kiel Working Papers 1312, Kiel Institute for the World Economy (IfW Kiel).
    21. Moore, Bartholomew, 2016. "Anticipated disinflation and recession in the New Keynesian model under learning," Economics Letters, Elsevier, vol. 142(C), pages 49-52.
    22. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, vol. 21(1), pages 1-32, March.
    23. Snower, Dennis J. & Karanassou, Marika, 2002. "An Anatomy of the Phillips Curve," IZA Discussion Papers 635, Institute of Labor Economics (IZA).
    24. Fender, John & Rankin, Neil, 2011. "A further contribution towards explaining why disinflation through currency pegging may cause a boom," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 516-536, April.
    25. Snower, Dennis J. & Karanassou, Marika, 2002. "An Anatomy of the Phillips Curve," IZA Discussion Papers 635, Institute of Labor Economics (IZA).

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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