Staggered contracts and persistence : microeconomic foundations and macroeconomic dynamics
We develop in this article a new form of wage contracts similar in spirit to those developed by Calvo (1983), and integrate these contracts into a dynamic stochastic grneral equilibrium model. Rational wage setting by utility maximizing trade-unions is explicitly modelled. We derive the optimal wage contracts, and compute the dynamic macroeconomic response to monetary shocks. It is shown that, unlike in most traditional models, this response can display strong persistence, a hump shaped response and positive autocorrelations in output and employment variations. All these results are obtained in a model with explicit closed-form solutions.
|Date of creation:||01 Jun 2003|
|Contact details of provider:|| Postal: Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10473945
Web page: https://uclouvain.be/en/research-institutes/immaq/ires
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000.
"Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?,"
Econometric Society, vol. 68(5), pages 1151-1180, September.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," NBER Working Papers 5809, National Bureau of Economic Research, Inc.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report 217, Federal Reserve Bank of Minneapolis.
- Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-113, May.
- Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
- Andersen, Torben M., 1998. "Persistency in sticky price models," European Economic Review, Elsevier, vol. 42(3-5), pages 593-603, May.
- Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
- Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
- Benassy, Jean-Pascal, 1995. "Money and wage contracts in an optimizing model of the business cycle," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 303-315, April.
- Bénassy, Jean-Pascal, 1993. "Money and wage contracts in an optimizing model of the business cycle," CEPREMAP Working Papers (Couverture Orange) 9325, CEPREMAP.
- Kevin X. D. Huang & Zheng Liu & Louis Phaneuf, 2000. "On the Transmission of Monetary Policy Shocks," Cahiers de recherche CREFE / CREFE Working Papers 112, CREFE, Université du Québec à Montréal, revised Sep 2001.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Edmund Phelps, 1978. "Disinflation without recession: Adaptive guideposts and monetary policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 783-809, December.
- Jeanne, Olivier, 1998. "Generating real persistent effects of monetary shocks: How much nominal rigidity do we really need?," European Economic Review, Elsevier, vol. 42(6), pages 1009-1032, June.
- Olivier Jeanne, 1997. "Generating Real Persistent Effects of Monetary Shocks: How Much Nominal Rigidity Do We Really Need?," NBER Working Papers 6258, National Bureau of Economic Research, Inc.
- Collard, Fabrice & Ertz, Guy, 1996. "Stochastic Nominal Wage Contacts in a Cash-in-Advance Model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Jul 1997.
- Fabrice COLLARD & Guy ERTZ, 2000. "Stochastic Nominal Wage Contracts in a Cash-in-Advance model," Discussion Papers (REL - Recherches Economiques de Louvain) 2000032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Steve Ambler & Alain Guay & Louis Phaneuf, 1999. "Wage Contracts and Labor Adjustment Costs as Endogenous Propagation Mechanisms," Cahiers de recherche CREFE / CREFE Working Papers 69, CREFE, Université du Québec à Montréal.
- Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-686, July.
- Ascari, G., 1997. "Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," The Warwick Economics Research Paper Series (TWERPS) 486, University of Warwick, Department of Economics.
- Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-190, February.
- Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
- 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.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ctl:louvre:2003021. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sebastien SCHILLINGS)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.