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Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth

  • Fabien Tripier

    (EconomiX - University of Paris X Nanterre)

This paper studies the co-movements of unemployment and labor productivity growth for the U.S. economy. Measures of co-movements in the frequency domain indicate that co-movements between variables differ strongly according to the frequency. First, long-term and business cycle co-movements are larger than short-term co-movements. Second, co- movements are negative in the short and long run, but positive over the business cycle. A New Keynesian model that combines nominal rigidity on the goods market (sticky prices) and real rigidity on the labor market (fair wages) is shown to be quantitatively consistent with the observed co-movements both in the long term and over the business cycle. However, the model fails to explain the short-term co-movements.

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Paper provided by EconWPA in its series Macroeconomics with number 0510015.

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Length: 41 pages
Date of creation: 18 Oct 2005
Handle: RePEc:wpa:wuwpma:0510015
Note: Type of Document - pdf; pages: 41
Contact details of provider: Web page: http://econwpa.repec.org

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