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Interacting nominal and real labour market rigidities

  • Vogel, Lukas

This note analyses the interaction between nominal wage stickiness and costly employment adjustment in a small closed-economy New Keynesian model with simple rule-based or optimal monetary policy. The results show (1) the costs of nominal and real rigidity to depend on the policy regime, (2) optimal policy to substantially contain the welfare loss, and (3) the absence of quantitatively important second-best interaction, suggesting that reducing rigidity along one dimension alone does not risk reducing overall welfare.

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File URL: https://mpra.ub.uni-muenchen.de/22647/2/MPRA_paper_22647.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22647.

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Date of creation: Nov 2008
Date of revision: May 2010
Handle: RePEc:pra:mprapa:22647
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  1. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  2. Frank Smets & Raf Wouters, 2004. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach," Working Paper Research 61, National Bank of Belgium.
  3. Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 899-927, August.
  4. Olivier Blanchard & Jordi Gali, 2005. "Real Wage Rigidities and the New Keynesian Model," NBER Working Papers 11806, National Bureau of Economic Research, Inc.
  5. Wolfgang Lechthaler & Dennis Snower, 2008. "Quadratic Labor Adjustment Costs and the New-Keynesian Model," Kiel Working Papers 1453, Kiel Institute for the World Economy.
  6. Andrew T. Levin & Alexei Onatski & John C. Williams & Noah Williams, 2005. "Monetary policy under uncertainty in micro-founded macroeconometric models," Working Paper Series 2005-15, Federal Reserve Bank of San Francisco.
  7. Jean-Guillaume Sahuc & Frank Smets, 2008. "Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 505-521, 03.
  8. Romain Duval & Lukas Vogel, 2012. "How Do Nominal and Real Rigidities Interact? A Tale of the Second Best," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1455-1474, October.
  9. Ascari, Guido & Merkl, Christian, 2007. "Real Wage Rigidities and the Cost of Disinflations," IZA Discussion Papers 3049, Institute for the Study of Labor (IZA).
  10. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2004. "The Cost of Nominal Inertia in NNS Models," NBER Working Papers 10889, National Bureau of Economic Research, Inc.
  11. Marco Ratto & Werner Roeger & Jan in 't Veld, 2010. "Using a DSGE model to look at the recent boom-bust cycle in the US," European Economy - Economic Papers 397, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  12. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2007. "The Cost of Nominal Rigidity in NNS Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1563-1586, October.
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