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Sticky Prices, Sticky Wages, and also Unemployment

This paper shows a New Keynesian model where wages are set at the value that matches household´s labor supply with firm´s labor demand. Subsequently, wage stickiness brings industry-level unemployment fluctuations. After aggregation, the rate of wage in?ation is negatively related to unemployment, as in the original Phillips (1958) curve, with an additional term that provides forward-looking dynamics. The supply-side of the model can be captured with dynamic expressions equivalent to those obtained in Erceg, Henderson, and Levin (2000), though with different slope coefficients. Impulse-response functions from a technology shock illustrate the inter-actions between sticky prices, sticky wages and unemployment.

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File URL: ftp://ftp.econ.unavarra.es/pub/DocumentosTrab/DT0801.PDF
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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 0801.

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Length: pages
Date of creation: 2008
Date of revision:
Publication status: Published in
Handle: RePEc:nav:ecupna:0801
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