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Wage Setting Actors, StickyWages, and Optimal Monetary Policy

Following Erceg et al. (2000), sticky wages are generally modelled assuming that households set wage contracts à la Calvo (1983). This paper compares that sticky-wage model with one where wage contracts are set by firms, assuming flexible prices in any case. The key variable for wage dynamics moves from the marginal rate of substitution (households set wages) to the marginal product of labor (firms set wages). Optimal monetary policy in both cases fully stabilizes wage inflation and the output gap after technology or preference innovations. However, nominal shocks make the assumption on who set wages relevant for optimal monetary policy.

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Paper provided by Departamento de Economía - Universidad Pública de Navarra in its series Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra with number 0701.

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Length: pages
Date of creation: 2007
Date of revision:
Publication status: Published in
Handle: RePEc:nav:ecupna:0701
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  1. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  2. Rankin, Neil, 1994. "Nominal Rigidity and Monetary Uncertainty," CEPR Discussion Papers 890, C.E.P.R. Discussion Papers.
  3. repec:nbr:nberre:0126 is not listed on IDEAS
  4. Robert Lucas & Mike Golosov, 2004. "Menu Costs and Phillips Curves," 2004 Meeting Papers 144, Society for Economic Dynamics.
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
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  7. James G. Hoehn, 1988. "Procyclical real wages under nominal-wage contracts with productivity variations," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 11-23.
  8. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  10. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312 National Bureau of Economic Research, Inc.
  11. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  12. Marc Giannoni & Michael Woodford, 2004. "Optimal Inflation-Targeting Rules," NBER Chapters, in: The Inflation-Targeting Debate, pages 93-172 National Bureau of Economic Research, Inc.
  13. Jeffery D. Amato & Thomas Laubach, 2002. "Implications of habit formation for optimal monetary policy," BIS Working Papers 121, Bank for International Settlements.
  14. Olivier J. Blanchard, 1985. "The Wage Price Spiral," NBER Working Papers 1771, National Bureau of Economic Research, Inc.
  15. Miguel Casares, 2007. "Monetary Policy Rules in a New Keynesian Euro Area Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 875-900, 06.
  16. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  17. Kevin X. D. Huang & Zheng Liu & Louis Phaneuf, 2003. "Why Does the Cyclical Behavior of Real Wages Change Over Time?," Emory Economics 0309, Department of Economics, Emory University (Atlanta).
  18. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  19. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  20. Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 277-316.
  21. Floden, Martin, 2000. "Endogenous monetary policy and the business cycle," European Economic Review, Elsevier, vol. 44(8), pages 1409-1429, August.
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