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Nominal Wage Rigidity in an Optimizing Model of an Open Economy

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Abstract

We build a dynamic general equilibrium model of a semi-small open economy in which staggered wage contracts are the only source of nominal rigidity. The model is capable of generating highly variable real and nominal exchange rates while predicting relative variabilities of prices and consumption that are broadly compatible with the data. The model also generates a high degree of persistence of nominal and real exchange rates. Nous élaborons un modèle dynamique d'équilibre général d'une petite économie ouverte où les contrats de salaire sont la seule source de rigidités nominales. Le modèle est capable d'engendrer des taux de change nominal et réel très variable tout en engendrant des variabilités des prix et de la consommation qui sont comparables aux données. Le modèle génère également un degré élevé de persistance des taux de change nominal et réel.

Suggested Citation

  • Steve Ambler & Emmanuel Hakizimana, 1999. "Nominal Wage Rigidity in an Optimizing Model of an Open Economy," Cahiers de recherche CREFE / CREFE Working Papers 94, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:94
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    More about this item

    Keywords

    nominal and real exchange rate persistence; wage rigidities;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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