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Relative Wage Concern: the Missing Piece in the Contract Multiplier?

  • G. Ascari
  • J. A. Garcia

We build a dynamic general equilibrium model with staggered wages that incorpo- rates relative wage concern on the part of workers. We then investigate the effects of money shocks on both inflation and output. In contrast to previous models of stag- gered wages/prices, both output and inflation persistence is a robust finding of the model. Persistence results hold for all the sensible parametrisations. Given the empir- ical evidence in favour of a relative wage concern, we conclude that this may be the missing piece in the money shocks persistence puzzle.

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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 32.

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Length: 51 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:dnb:staffs:32
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