Open Access
Wage stickiness and unemployment fluctuations: an alternative approach
(2009) Casares Polo, Miguel; Moreno Pérez, Antonio; Vázquez, Jesús; Economía; Ekonomia
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.
Open Access
Wage setting actors, sticky wages, and optimal monetary policy
(2007) Casares Polo, Miguel; Economía; Ekonomia
Following Erceg et al. (2000), sticky wages are generally modelled assuming that households set wage contracts à la Calvo (1983). This paper compares that sticky-wage model with one where wage contracts are set by firms, assuming flexible prices in any case. The key variable for wage dynamics moves from the marginal rate of substitution (households set wages) to the marginal product of labor (firms set wages). Optimal monetary policy in both cases fully stabilizes wage inflation and the output gap after technology or preference innovations. However, nominal shocks make the assumption on who set wages relevant for optimal monetary policy.
Open Access
Did US business dynamism recover in the 2010s?
(2021) Aguilera Bravo, Asier; Casares Polo, Miguel; Khan, Hashmat; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía
We provide evidence that both firm and establishment entry rates in the US have been increasing over the past decade, seemingly ending the secular decline observed over previous decades. However, the job-size of new businesses relative to incumbents has decreased substantially. Controlling for these opposite trends reveals that the size-adjusted entry rate continues to decline.
Open Access
The great moderation of inflation: a structural analysis of recent U.S. monetary business cycles
(2012) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
U.S. inflation has experienced a great moderation in the last two decades. This paper examines the factors behind this and other stylized facts, such as the weaker correlation of inflation and nominal interest rate (Gibson paradox). Our findings point at lower exogenous variability of supply-side shocks and, to a lower extent, structural changes in money demand, monetary policy, and firms’ sticky pricing behavior as the main driving forces of the changes observed in recent U.S. business cycles.
Embargo
On staggered prices and optimal inflation
(2019) Aguilera Bravo, Asier; Casares Polo, Miguel; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía; Universidad Pública de Navarra / Nafarroako Unibertsitate Publikoa
This paper computes the steady-state optimal rate of inflation assuming two different sticky-price specifications, Calvo (1983) and Taylor (1980), in a model with monopolistic competition. The optimal rate of inflation in steady state is always positive. This result is robust to changes in the degree of price stickiness. In both cases of staggered prices, the optimal rate of inflation is approximately equal to the ratio between the rate of discount and the Dixit-Stiglitz elasticity.
Open Access
An estimated new-Keynesian model with unemployment as excess supply of labor
(2010) Casares Polo, Miguel; Moreno Pérez, Antonio; Vázquez, Jesús; Economía; Ekonomia
As one alternative to search frictions, wage stickiness is introduced in a New-Keynesian model to generate endogenous unemployment fluctuations due to mismatches between labor supply and labor demand. The effects on an estimated New-Keynesian model for the U.S. economy are: i) the Calvo-type probability on wage stickiness rises, ii) the labor supply elasticity falls, iii) the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data, and iv) wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations.
Open Access
Dynamic analysis in an optimizing monetary model with transaction costs and endogenous investment
(2001) Casares Polo, Miguel; Economía; Ekonomia
This paper analyzes the period-to-period changes that occur in an optimizing monetary model with uncertainty and sticky prices. Money is incorporate in its role as a medium of exchange through a time-cost transactions technology. Another important characteristic of the model is that both capital and investment are obtained endogenously. In this regard, adjustment costs of installing investment are incorporated to smooth and delay capital movements over the economic cycle. We will focus attention on analyzing the consumption, investment and real money demand functions resulting from the model. These three equations give rise to the structural IS-LM economy as part of the general equilibrium described in the paper. Nominal prices are sticky, i.e., they do not adjust instantly thereby allowing departures from general equilibrium obtained when there is absence of nominal frictions. We chose to have the Fuhrer-Moore specification for nominal contract prices. The model is calibrated on quarterly observations from United States data. Four types of exogenous shocks are included in our setup: production technology shocks, consumption preference (demand) shocks, monetary policy shocks, and shopping time shocks. Hence, variability of output, consumption, investment, etc., may result from several sources. The impact of each shock in the economic cycle will be examined by plotting impulse-response functions implied by the solutions of the model.
Open Access
Sticky prices, sticky wages, and also unemployment
(2008) Casares Polo, Miguel; Economía; Ekonomia
This paper shows a New Keynesian model where wages are set at the value that matches household's labor supply with firm's labor demand. Subsequently, wage stickiness brings industry-level unemployment fluctuations. After aggregation, the rate of wage inflation is negatively related to unemployment, as in the original Phillips (1958) curve, with an additional term that provides forward-looking dynamics. The supply-side of the model can be captured with dynamic expressions equivalent to those obtained in Erceg, Henderson, and Levin (2000), though with different slope coefficients. Impulse-response functions from a technology shock illustrate the interactions between sticky prices, sticky wages and unemployment.
Open Access
Why are labor markets in Spain and Germany so different?
(2016) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
The volatility of unemployment fluctuations has been about 3 times higher in Spain than in Germany over the recent business cycles (1996-2013). In contrast, fluctuations of the rate of wage inflation were significantly more volatile in Germany than in Spain. We estimate a New-Keynesian model and find several explanatory factors: wage rigidity has been higher in Spain, the labor force has been more elastic in Germany than in Spain, large and persistent shocks augmenting the labor force have been estimated for Spain whereas in Germany there have been substantial shocks reducing the intensity of hours per worker, and the ECB’s policy design brought monetary shocks with much greater influence to the Spanish unemployment.
Open Access
Monopolistic competition, sticky prices, and the minimal mark-up in steady state
(2007) Casares Polo, Miguel; Economía; Ekonomia
This note reports the rate of inflation that minimizes the mark-up of prices over marginal costs in the steady-state solution of a monopolistic competition model with either Taylor (1980) or Calvo (1983) pricing. The minimal mark-up is always found at a positive and low rate of inflation for any sensible parameter calibration. Actually, the rate of inflation that minimizes the mark-up is very close to ratio between the real rate of discount and the Dixit-Stiglitz elasticity. This result is robust to altenative sticky-price specifications.