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Unemployment as excess supply of labor: Implications for wage and price inflation

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  • Casares, Miguel

Abstract

The introduction of both market-clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the New Keynesian model. As a result, wage inflation dynamics are forward-looking and depend negatively on the rate of unemployment. Moreover, both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in Erceg et al. (2000), though with different slope coefficients. In an equal-volatility comparison, the model with unemployment conveys less price stickiness and more wage stickiness.

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  • Casares, Miguel, 2010. "Unemployment as excess supply of labor: Implications for wage and price inflation," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 233-243, March.
    • Handle: RePEc:eee:moneco:v:57:y:2010:i:2:p:233-243
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    1. Casares, Miguel & Moreno, Antonio & Vázquez, Jesús, 2014. "An estimated New-Keynesian model with unemployment as excess supply of labor," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 338-359.
    2. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
    3. Huajie Jiang & Qiguo Gong, 2022. "Does Skill Polarization Affect Wage Polarization? U.S. Evidence 2009–2021," Sustainability, MDPI, vol. 14(21), pages 1-17, October.
    4. Huang, Kevin X.D. & Meng, Qinglai, 2012. "Increasing returns and unsynchronized wage adjustment in sunspot models of the business cycle," Journal of Economic Theory, Elsevier, vol. 147(1), pages 284-309.
    5. Fernandes, Leonardo H.S. & Araújo, Fernando H.A. & Silva, Igor E.M. & Leite, Urbanno P.S. & de Lima, Neílson F. & Stosic, Tatijana & Ferreira, Tiago A.E., 2020. "Multifractal behavior in the dynamics of Brazilian inflation indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 550(C).
    6. Jovanovic, Branimir & Petreski, Marjan, 2014. "Monetary policy, exchange rates and labor unions in SEE and the CIS during the financial crisis," Economic Systems, Elsevier, vol. 38(3), pages 309-332.
    7. Charalampidis, Nikolaos, 2020. "On unemployment cycles in the Euro Area, 1999–2018," European Economic Review, Elsevier, vol. 121(C).

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