Wage stickiness and unemployment fluctuations: an alternative approach

Date

2009

Director

Publisher

Acceso abierto / Sarbide irekia
Documento de trabajo / Lan gaia

Project identifier

Abstract

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.

Description

Keywords

Wage rigidity, Price rigidity, Unemployment

Department

Economía / Ekonomia

Faculty/School

Degree

Doctorate program

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CC Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0)

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