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Monetary Policy When Wages Are Downwardly Rigid: Friedman Meets Tobin

  • KIM, Jinill
  • RUGE-MURCIA, Francisco J.

In a monetary economy with downwardly rigid wages, the central banker should target a low, but strictly positive, inflation rate.

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File URL: http://hdl.handle.net/1866/3999
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Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2009-14.

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Length: 25 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:mtl:montde:2009-14
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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," NBER Technical Working Papers 0282, National Bureau of Economic Research, Inc.
  2. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
  3. James Peery Cover, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1261-1282.
  4. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2006. "How wages change : micro evidence from the International Wage Flexibility Project," Working Paper Research 96, National Bank of Belgium.
  5. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  6. Daniel Levy & Sourav Ray & Haipeng (Allan) Chen & Mark Bergen, 2007. "Asymmetric Price Adjustment in the Small," Emory Economics 0703, Department of Economics, Emory University (Atlanta).
  7. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
  8. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  9. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  10. Kim, Jinill & Henderson, Dale W., 2005. "Inflation targeting and nominal-income-growth targeting: When and why are they suboptimal?," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1463-1495, November.
  11. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  12. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-50, April.
  13. Ernst Fehr & Lorenz Götte, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series 335, CESifo Group Munich.
  14. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Optimal Fiscal and Monetary Policy under Imperfect Competition," Departmental Working Papers 200101, Rutgers University, Department of Economics.
  15. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  16. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part I): Examinations of Nominal Wage Change Distributions," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 1-29, August.
  17. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745 Elsevier.
  18. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
  19. RUGE-MURCIA, Francisco J., 2010. "Estimating Nonlinear DSGE Models by the Simulated Method of Moments," Cahiers de recherche 2010-10, Universite de Montreal, Departement de sciences economiques.
  20. Jinill Kim & Sunghyun Henry Kim & Ernst Schaumburg & Christopher A. Sims, 2003. "Calculating and using second order accurate solutions of discrete time dynamic equilibrium models," Finance and Economics Discussion Series 2003-61, Board of Governors of the Federal Reserve System (U.S.).
  21. Stephanie Schmitt-Grohé & Martín Uribe, 2006. "Optimal Inflation Stabilization in a Medium-Scale Macroeconomic Model," Working Papers Central Bank of Chile 410, Central Bank of Chile.
  22. Sara G. Castellanos & Rodrigo Garcia-Verdu & David S. Kaplan, 2004. "Nominal Wage Rigidities in Mexico: Evidence from Social Security Records," NBER Working Papers 10383, National Bureau of Economic Research, Inc.
  23. Alessandro Barattieri & Susanto Basu & Peter Gottschalk, 2010. "Some Evidence on the Importance of Sticky Wages," NBER Working Papers 16130, National Bureau of Economic Research, Inc.
  24. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  25. Andrews, Donald W K, 2001. "Testing When a Parameter Is on the Boundary of the Maintained Hypothesis," Econometrica, Econometric Society, vol. 69(3), pages 683-734, May.
  26. Aubhik Khan & Robert G. King & Alexander L. Wolman, 2002. "Optimal Monetary Policy," NBER Working Papers 9402, National Bureau of Economic Research, Inc.
  27. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part II): Examinations Using a Friction Model," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 31-68, August.
  28. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
  29. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 759-789.
  30. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  31. Martin Uribe & Stephanie Schmitt-Grohe, 2001. "Optimal fiscal and monetary policy under sticky prices," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  32. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
  33. Luca A Ricci & Pierpaolo Benigno, 2009. "The Inflation-Unemployment Trade-off at Low Inflation," IMF Working Papers 09/34, International Monetary Fund.
  34. KIM, Jinill & RUGE-MURCIA, Francisco J., 2007. "How Much Inflation is Necessary to Grease the Wheels?," Cahiers de recherche 11-2007, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  35. Pedro Teles, 2003. "The optimal price of money," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 29-39.
  36. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  37. Carlsson Mikael & Westermark Andreas, 2008. "Monetary Policy under Downward Nominal Wage Rigidity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-61, October.
  38. Fagan, Gabriel & Messina, Julián, 2009. "Downward wage rigidity and optimal steady-state inflation," Working Paper Series 1048, European Central Bank.
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