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Sticky wage Nash bargaining model with incomplete information

Author

Listed:
  • Marek Antosiewicz
  • Maciej Bukowski
  • Pawel Kowal

Abstract

We develop an alternative novel method of introducing real wage rigidity into an otherwise standard search and matching model. Wages are constantly renegotiated through Nash wage bargaining, however negotiations are based on imperfect information regarding the productivity level and consequently marginal productivity. The imperfect information mechanism is modeled by means of a Kalman filter. As a consequence, after a positive technology shock some of the increase in productivity is attributed to information noise, resulting in a smaller rise in the real wage. This in turn prompts firms to post more vacancies and increase capital investment. Overall, we show that the real wage rigidity mechanism substantially amplifies the model's internal propagation mechanism.

Suggested Citation

  • Marek Antosiewicz & Maciej Bukowski & Pawel Kowal, 2011. "Sticky wage Nash bargaining model with incomplete information," IBS Working Papers 1/2011, Instytut Badan Strukturalnych.
  • Handle: RePEc:ibt:wpaper:wp012011
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    More about this item

    Keywords

    DSGE; Sticky Wages; Labour Market Frictions; Perturbation Method;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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