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A New Keynesian Model with Overtime Labor

Author

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  • Joao Madeira

    (Department of Economics, University of Exeter)

Abstract

This paper extends the standard New Keynesian model by incorporating labor adjustment costs and overtime work. I show that labor frictions help reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level. The introduction of labor frictions affects the dynamic behavior of economic variables (particularly employment and inflation) and implies that firms marginal costs should be measured in overtime costs. Marginal costs measured in overtime hours are procyclical and are predicted by inflation as suggested by theory.

Suggested Citation

  • Joao Madeira, 2008. "A New Keynesian Model with Overtime Labor," Discussion Papers 0815, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:0815
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    File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0815.pdf
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    Cited by:

    1. Joao Madeira, 2012. "Evaluating the Role of Firm-Specific Capital in New Keynesian models," Discussion Papers 1204, Exeter University, Department of Economics.

    More about this item

    Keywords

    New Keynesian Phillips Curve; business cycle models; labor frictions; inflation dynamics.;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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