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Staggered Wages and Disinflation Dynamics: What can More Microfoundations Tell Us

Author

Listed:
  • Guido Ascari

    (University of Copenhagen Institute of Economics)

  • Neil Rankin

    (University of Copenhagen Institute of Economics)

Abstract

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. As in John Taylor's approach, the money wage is fixed for two periods, but in our model it is also chosen according to intertemporal optimisation as are consumption and money demand. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle recently raised by Laurence Ball, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump.

Suggested Citation

  • Guido Ascari & Neil Rankin, 1997. "Staggered Wages and Disinflation Dynamics: What can More Microfoundations Tell Us," Discussion Papers 97-16, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:9716
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    Cited by:

    1. Guido Ascari, 2004. "Staggered Prices and Trend Inflation: Some Nuisances," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 642-667, July.
    2. Huw Dixon, 1999. "New Keynesian economics, nominal rigidities and involuntary unemployment," Journal of Economic Methodology, Taylor & Francis Journals, vol. 6(2), pages 221-238.
    3. Özge Senay, "undated". "Disinflation Dynamics in an Open Economy General Equilibrium Model," Discussion Papers 98/15, Department of Economics, University of York.
    4. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, vol. 2(3), pages 383-400, September.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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