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A Generalized New Keynesian Model with Wage Stickiness

Author

Listed:
  • Rui Wang

    (Faculty of Economics, Rissho University, 4-2-16, Osaki, Shinagawa Ward, Tokyo 141-8602, Japan)

Abstract

In this paper, we derive a generalized version of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to study how real imperfections of labor market affect the steady state and dynamics of model given different non-zero annual target inflation rates. The main finding is that, given the same target inflation rate, wage stickiness is more distortionary than the price stickiness. The existence of positive target inflation rate can also change the first-order dynamics of model, amplifying or reducing the dynamic response of model according to the type of exogenous shocks. A relatively high target inflation rate, 2% or 3%, may be preferable to a zero target inflation rate.

Suggested Citation

  • Rui Wang, 2022. "A Generalized New Keynesian Model with Wage Stickiness," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 1-15, June.
    • Handle: RePEc:wsi:jicepx:v:13:y:2022:i:02:n:s1793993322500120
    DOI: 10.1142/S1793993322500120
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    More about this item

    Keywords

    Price stickiness; wage stickiness; generalized new Keynesian model; distortion;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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