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Wage Stickiness and Unemployment Fluctuations: An Alternative Approach

  • Miguel Casares

    ()

    (Departamento de Economía, Universidad Pública de Navarra)

  • Antonio Moreno

    ()

    (Departamento de Economía, Universidad de Navarra)

  • Jesús Vázquez

    ()

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

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.

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File URL: http://www.unav.edu/documents/10174/6546776/1250169795_WP_UNAV_04_09.pdf
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 04/09.

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Length: 37 pages
Date of creation: 13 Aug 2009
Date of revision:
Handle: RePEc:una:unccee:wp0409
Contact details of provider: Web page: http://www.unav.edu/web/facultad-de-ciencias-economicas-y-empresariales

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