Imperfect Competition, Nominal Wage Contracts and the Business Cycle
We introduce nominal wage contracts into a competitive and a noncompetitive labor market structure. We find these models to have similar business cycle properties, but we argue that the imperfectly competitive market structure is more appropriate for nominal wage contract analyzes. We introduce imperfect competition to the labor market by assuming that households have market power and consequently choose nominal wage contracts as part of their maximization problem, while in a competitive structure nominal wage contracts are introduced via an exogenous rule. The latter formulation lacks microeconomic foundation that makes the model inappropriate for the analysis of nominal wage contracts.
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| Date of creation: | 11 Jan 2008 |
| Date of revision: | 11 Jan 2008 |
| Handle: | RePEc:clg:wpaper:2008-16 |
| Contact details of provider: | Postal: 2500 University Drive N.W., Calgary, Alberta, T2N 1N4 Phone: (403) 220-5857 Fax: (403) 282-5262 Web page: http://econ.ucalgary.ca/ More information through EDIRC
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- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
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- Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
- Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
- Hansen, Gary D., 1985.
"Indivisible labor and the business cycle,"
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Elsevier, vol. 16(3), pages 309-327, November.
- Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
- Jang-Ok Cho, 1993. "Money and Business Cycle with One-Period Nominal Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 638-59, August.
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