Monetary shocks with nominal wage stickiness and variable effort
Wallers (1989) model which incorporates an effort augmented production function into a traditional Keynesian analysis of supply and demand shocks is generalised by not restricting the elasticity of substitution between effort and employment to be unity. This significantly changes the results in that unanticipated monetary shocks will affect output and indexing real wages will increase the variation of output in response to supply shocks. Involuntary unemployment is not necessary for demand shocks to affect employment and output in this model.
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- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
- Faria, Joao Ricardo, 2000. "Supervision and effort in an intertemporal efficiency wage model: the role of the Solow condition," Economics Letters, Elsevier, vol. 67(1), pages 93-98, April.
- Waller, Christopher J., 1989. "Efficiency wages, wage indexation and macroeconomic stabilization," Economics Letters, Elsevier, vol. 30(2), pages 125-128, August.
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