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Wage Stickiness and Unemployment Fluctuations: An Alternative Approach

Author

Listed:
  • Miguel Casares

    (Departamento de Economía-UPNA)

  • Antonio Moreno

    (Departamento de Economía-Universidad de Navarra)

  • Jesús Vázquez

    (Departamento de Fundamentos del Análisis Económico II-Universidad del País Vasco)

Abstract

Erceg, Henderson and Levin (2000, Journal of Monetary Economics) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using Bayesian econometric techniques, both models are estimated with U.S. quarterly data of the Great Moderation. Estimation results are similar and provide a good empirical fit, with the crucial difference that our proposal delivers unemployment fluctuations. Thus, second-moment statistics of U.S. unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.

Suggested Citation

  • Miguel Casares & Antonio Moreno & Jesús Vázquez, 2009. "Wage Stickiness and Unemployment Fluctuations: An Alternative Approach," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0902, Departamento de Economía - Universidad Pública de Navarra.
    • Handle: RePEc:nav:ecupna:0902
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    References listed on IDEAS

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    Cited by:

    1. Casares, Miguel & Moreno, Antonio & Vázquez, Jesús, 2014. "An estimated New-Keynesian model with unemployment as excess supply of labor," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 338-359.
    2. Carl E. Walshn, 2016. "Goals versus Rules as Central Bank Preformance Measures," Book Chapters, Hoover Institution, Stanford University.
    3. Walsh, Carl E, 2015. "Goals and Rules in Central Bank Design," Santa Cruz Department of Economics, Working Paper Series qt3md9p6t5, Department of Economics, UC Santa Cruz.
    4. Carl E. Walsh, 2015. "Day Two Keynote Address: Goals and Rules in Central Bank Design," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 295-352, September.

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    More about this item

    Keywords

    Wage Rigidity; Price Rigidity; Unemployment;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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