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Wage Setting Actors, StickyWages, and Optimal Monetary Policy

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Abstract

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.

Suggested Citation

  • Miguel Casares, 2007. "Wage Setting Actors, StickyWages, and Optimal Monetary Policy," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0701, Departamento de Economía - Universidad Pública de Navarra.
    • Handle: RePEc:nav:ecupna:0701
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    Keywords

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    JEL classification:

    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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