Staggered wages, inflation, and discounting

Bonini, Patricia and Da Silva, Sergio (2007): Staggered wages, inflation, and discounting. Unpublished.

Abstract

In the literature of staggered wages (Taylor, 1979, 1980; Blanchard, 1986; Ball and Cecchetti, 1991) the discount factor is neglected in the workers’ loss function. Yet discounting is to be viewed as an extra piece of micro-foundation with implications for discretionary monetary policy. We revisit the issue and show that discounting in the model of staggered wages actually lowers the time consistent steady inflation.

• Item Type: MPRA Paper
• Institution: Federal University of Santa Catarina
• Language: English
• Keywords: Staggered wage model; Time consistent steady inflation; Discounting
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects); E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes; Keynesian; Post-Keynesian