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Staggered Wages and Output Dynamics under Disinflation

Listed author(s):
  • Ascari, G.
  • Rankin, N.

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. The money wage is fixed for two periods, and is chosen according to intertemporal optimization. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp557.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 557.

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Length: 26 pages
Date of creation: 2000
Handle: RePEc:wrk:warwec:557
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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report 217, Federal Reserve Bank of Minneapolis.
  2. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-113, May.
  3. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
  4. Sutherland, Alan, 1996. " Financial Market Integration and Macroeconomic Volatility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 521-539, December.
  5. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-686, July.
  6. Benabou, R. & Konieczny, J.D., 1991. "On Inflation and Output with CostlyPrice Changes: A Simple Unifying Result," Working papers 586, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Rankin, Neil, 1998. "Nominal rigidity and monetary uncertainty," European Economic Review, Elsevier, vol. 42(1), pages 185-199, January.
  8. Rankin, Neil, 1995. "Nominal Rigidity and Monetary Uncertainty in a Small Open Economy," CEPR Discussion Papers 1231, C.E.P.R. Discussion Papers.
  9. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-1277, November.
  10. Laurence Ball, 1990. "Credible Disinflation with Staggered Price Setting," NBER Working Papers 3555, National Bureau of Economic Research, Inc.
  11. Peter N. Ireland, 1995. "Optimal disinflationary paths," Working Paper 95-01, Federal Reserve Bank of Richmond.
  12. Cooley, T.F. & Cho, J.O., 1991. "The Business Cycle with Nominal Contracts," Papers 90-07, Rochester, Business - General.
  13. Blanchard, Olivier Jean & Summers, Lawrence H, 1988. "Beyond the Natural Rate Hypothesis," American Economic Review, American Economic Association, vol. 78(2), pages 182-187, May.
  14. repec:nbr:nberre:0126 is not listed on IDEAS
  15. Guillermo A. Calvo, 1983. "Staggered Contracts and Exchange Rate Policy," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 235-258 National Bureau of Economic Research, Inc.
  16. Marcus Miller & Alan Sutherland, 1992. "Contacts, Credibility and Common Knowledge; Their Influenceon Inflation Convergence," IMF Working Papers 92/26, International Monetary Fund.
  17. Danziger, Leif, 1988. "Costs of Price Adjustment and the Welfare Economics of Inflation and Disinflation," American Economic Review, American Economic Association, vol. 78(4), pages 633-646, September.
  18. David Romer., 1989. "Staggered Price Setting with Endogenous Frequency of Adjustment," Economics Working Papers 89-115, University of California at Berkeley.
  19. V. Bhaskar, 1998. "On Endogenously Staggered Prices," Macroeconomics 9809007, EconWPA.
  20. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  21. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 383-400, September.
  22. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
  23. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  24. Driffill, John & Miller, Marcus, 1993. "Learning and Inflation Convergence in the ERM," Economic Journal, Royal Economic Society, vol. 103(417), pages 369-378, March.
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