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Real Wage Rigidity and the Taylor Principle

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  • Eurilton Araújo

Abstract

This paper investigates conditions for equilibrium determinacy under inflation-targeting interest-rate rules when the basic new Keynesian model is extended to incorporate real wage rigidity. I show that the introduction of real wage rigidity increases the determinacy region under forward-looking rules. Moreover, the Taylor principle continues to ensure equilibrium uniqueness under current-looking rules.

Suggested Citation

  • Eurilton Araújo, 2008. "Real Wage Rigidity and the Taylor Principle," Business and Economics Working Papers 011, Unidade de Negocios e Economia, Insper.
    • Handle: RePEc:aap:wpaper:011
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    File URL: https://repositorio.insper.edu.br/handle/11224/5771
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    References listed on IDEAS

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    1. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
    2. Lubik, Thomas A. & Marzo, Massimiliano, 2007. "An inventory of simple monetary policy rules in a New Keynesian macroeconomic model," International Review of Economics & Finance, Elsevier, vol. 16(1), pages 15-36.
    3. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
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