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Downward Nominal Wage Rigidity: The Implications From A New-Keynesian Model

Author

Listed:
  • Lilia Maliar

    (Universidad de Alicante)

  • Liudmyla Hvozdyk

    (University of Munich)

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

We study the determinants of Downward Nominal Wage Rigidity(DNWR) in the context of a new-Keynesian heterogeneous-agent model. Laborproductivity of agents is subject to perfectly insurable idiosyncratic shocks.Wage contracts are signed one period ahead and specify the minimum wagethat the firm should pay to each worker conditional on her future expectedmarginal product. The model predicts a simple structural equation: the degreesof DNWR are entirely determined by unexpected shocks to technology andmoney supply. We test this model's implication with data on the U.S. economy,and we find that the above two shocks can account for about 60% of variation inthe aggregate measures of DNWR.

Suggested Citation

  • Lilia Maliar & Liudmyla Hvozdyk & Serguei Maliar, 2006. "Downward Nominal Wage Rigidity: The Implications From A New-Keynesian Model," Working Papers. Serie AD 2006-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2006-04
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Downward Nominal Wage Rigidity; New-Keynesian model;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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