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Relative wage concern: the missing piece in the contract multiplier?

  • Ascari, Guido
  • Garcia, Juan A.

We build a dynamic general equilibrium model with staggered wages that incorpo- rates relative wage concern on the part of workers. We then investigate the effects of money shocks on both inflation and output. In contrast to previous models of stag- gered wages/prices, both output and inflation persistence is a robust finding of the model. Persistence results hold for all the sensible parametrisations. Given the empir- ical evidence in favour of a relative wage concern, we conclude that this may be the missing piece in the money shocks persistence puzzle.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 58 (2004)
Issue (Month): 4 (December)
Pages: 343-369

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Handle: RePEc:eee:reecon:v:58:y:2004:i:4:p:343-369
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