Kim, Insu (2009): Dual Wage Rigidities: Theory and Some Evidence.
This is the latest version of this item.
Download (487kB) | Preview
This paper investigates wage dynamics assuming the potential presence of dual wage stickiness: with respect to both the frequency as well as the size of wage adjustments. In particular, this paper proposes a structural model of wage inflation dynamics assuming that although workers adjust wage contracts at discrete time intervals, they are limited in their abilities to adjust wages as much as they might desire. The dual wage stickiness model nests the baseline model, based on Calvo-type wage stickiness, as a particular case. Empirical results favor the dual sticky wage model over the baseline model that assumes only one type of wage stickiness in several dimensions. In particular, it outperforms the baseline model in terms of goodness of fitness as well as in the ability to explain the observed reverse dynamic cross-correlation between wage inflation and real output - which the baseline model fails to capture.
|Item Type:||MPRA Paper|
|Original Title:||Dual Wage Rigidities: Theory and Some Evidence|
|English Title:||Dual Wage Rigidities: Theory and Some Evidence|
|Keywords:||Wage inflation, sticky wages, sticky prices, new Keynesian, hybrid.|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General
|Depositing User:||Insu Kim|
|Date Deposited:||22. Mar 2010 00:20|
|Last Modified:||12. Feb 2013 20:38|
Bils, Mark; Klenow, Peter J. “Some Evidence on the Importance of Sticky Prices.” Journal of Political Economy, 2004, 112(5), pp. 947-985.
Boivin, J., Giannoni, M. “Has Monetary Policy Become More Effective?” Review of Economics and Statistics, 2006, 88(3), pp. 445-462.
Calvo, Guillermo A. “Staggered Prices in a Utility-Maximizing Framework.” Journal of Monetary Economics, 1983, 12(3), pp. 383-398.
Carlton, Dennis. “The Rigidity of Prices.” American Economic Review, 1986, 76(4), pp. 637-658.
Chari, V. V., Kehoe, Patrick J. and McGrattan, Ellen R. “New Keynesian Models: Not Yet Useful for Policy Analysis.” American Economic Journal: Macroeconomics, 2009, 1(1), pp. 242-266.
Chauvet, Marcelle and Kim, Insu. “The Microfoundations of Inflation Persistence in a New Keynesian Phillips Curve Model.” University of California, Riverside, 2009, mimeo.
Christiano, Lawrence J.; Eichenbaum, Martin and Evans, Charles L. “Monetary Policy Shocks: What Have we Learned and to What End?” Handbook of Macroeocnomics, 1999, 1A, edited by John B. Taylor and Michael Woodford. Amsterdam: Elsevier Sci.
Christiano, Lawrence J.; Eichenbaum, Martin and Evans, Charles L. “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy.” Journal of Political Economy, 2005, 113(1), pp. 1-45.
Clarida, R., Gali, J. and Gertler, M. “Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory.” Quarterly Journal of Economics, February 2000, 147-180.
Cogley, Tim, and Sbordone, Argia. “Inflation, Indexation and Inflation Persistence in the New Keynesian Phillips Curve.” American Economic Review, 2008, 98(5), pp. 2101-2126.
Erceg, Christopher J.; Henderson, Dale W. and Levin, Andrew T. “Optimal Monetary Policy with Staggered Wage and Price Contracts.” Journal of Monetary Economics, 2000, 46, pp.281-313
Fabiani, S.; Druant, M.; Hernando, I.; Kwapil, C.; Landau, B.; Loupias, C.; Martins, F.; Math, T.; Sabbatini, R.; Stahl, H. and Stockman, A. “The Pricing Behavior of Firms in the Euro Area: New Survey Evidence.” 2004, mimeo.
Fuhrer, Jeffery C. and Moore, George R. “Inflation Persistence.” Quarterly Journal of Economics, 1995, 110(1), pp. 127-59.
Gali, Jordi and Gertler, Mark. Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, 1999, 44(2), pp. 195-222.
Gali, Jordi. “Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?” American Economic Review, 1999, 89(1), 249-271.
Gali, J.; Gertler, M., Lopez-Salido, D. “Robustness of the Estimates of the Hybrid New Keynesian Phillips curve.” Journal of Monetary Economics, 2005, 52 (6), pp. 1107-1118.
Huang, Kevin X. D.; Liu, Zheng and Phaneuf, Louis. “Why Does the Cyclical Behavior of Real Wages Change Over Time?” American Economic Review, 2004, 94(4), pp. 836-856.
Ireland, Peter N. “Technology Shocks in the New Keynesian Model.” Review of Economics and Statistics, 2004, 86(4), pp. 923-936.
Jeffreys, H. “Theory of Probability” (3rd Edition). Oxford University Press, 1961.
Justiniano, Alejandro and Primiceri, Giorgio. “The Time Varying Volatility of Macroeconomic Fluctuations.” American Economic Review, June 2008, pp. 604-641.
Kashyap, Anil K. “Sticky Prices: New Evidence from Retail Catalogs.” Quarterly Journal of Economics, 1995, Vol. 110(1), pp. 245-274
Kim, Chang-Jin and Nelson, Charles. “Estimation of a Forward-Looking Monetary Policy Rule: A Time-Varying Parameter Model using Ex-Post Data.” Journal of Monetary Economics, 2006, 53(8), pp. 1969-1966.
Kim, Jinill. “Constructing and Estimating a Realistic Optimizing Model of Monetary Policy.” Journal of Monetary Economics, 2000, 45, pp. 329-359.
Kollmann, Robert. “The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: a Quantitative Investigation.” Universite de Montreal, 1996, mimeo.
Liu, Zheng and Phaneuf, Louis. “Technology Shocks and Labor Market Dynamics: Some Evidence and Theory.” Journal of Monetary Economics, 2007, 54(8), pp. 2534-2553.
Mankiw, N. Gregory. and Reis, Richardo. “Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve.” Quarterly Journal of Economics, 2002, 117(4), pp. 1295-1328.
Milani, F. “Expectations, learning and macroeconomic Persistence.” Journal of Monetary Economics, 2007, 54, pp. 2065-2082.
Nakamura, Emi and Steinsson, Jon. “Five Facts About Prices: A Reevaluation of Menu Cost Models.” Quarterly Journal of Economics, 2008, 123(4), pp. 1415-1464.
Rabanala, Pau and Rubio-Ramirez, Juan F. “Comparing New Keynesian Models of the Business Cycle: A Bayesian Approach.” Journal of Monetary Economics, 2005, 52, pp.1151-1166.
Roberts, John M. “Is inflation sticky?” Journal of Monetary Economics, 1997, 39, pp. 173-196.
Roberts, John M. “How Well Does the New Keynesian Sticky-Price Model Fit the Data?” Contributions to Macroeconomics, 2005, 5(1), pp. 1206-1206.
Rotemberg, Julio J. “Sticky Prices in the United States.” Journal of Political Economy, 1982, 90(6), pp. 1187-1211.
Rudd, Jeremy and Whelan, Karl. “Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?” American Economic Review, 2006, 96, pp. 303-20.
Rudd, Jeremy and Whelan, Karl. “Modeling Inflation Dynamics: A Critical Review of Recent Research.” Journal of Money, Credit and Banking, 2007, Vol. 39, No. 1, pp. 155-170.
Sargent, T.J., Williams, N., Zha T. “Shocks and Government Beliefs: The Rise and Fall of American Inflation.” American Economic Review, 2006, 96(4), pages 1193-1224.
Stock, J. H. and Watson, M. W. “Has the Business Cycle Changed? Evidence and Explanations.” FRB Kansas City Symposium, Jackson Hole, Wyoming, 2003.
Sbordone, Argia M. “Do expected future marginal costs drive in°ation dynamics?” Journal of Monetary Economics, 2005, 52 (6), pp. 1183-1197.
Schorfheide, Frank. “DSGE Model-Based Estimation of the New Keynesian Phillips Curve.” Federal Reserve Bank of Richmond Economic Quarterly, 2008, 94(4), pp. 397-433.
Smets, Frank and Wouters, Rafael, “Dynamic Stochastic General Equilibrium Model of the Euro Area.” Journal of the European Economic Association, 2003, 1(5), pp. 1123–1175.
Smets, Frank and Wouters, Rafael. Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach, American Economic Review, 2007, 97(3), pp. 586–606.
Taylor, J.B. “Staggered Wage Setting in a Macro Model.” American Economic Review, Papers and Proceedings, 1979, 69 (2), pp. 108-113.
Taylor, J.B. “Aggregate Dynamics and Staggered Contracts.” Journal of Political Economy, 1980, 88, pp. 1–22.
Taylor, J.B. “Discretion Versus Policy Rules in Practice.” Carnegie-Rochester Conference Series on Public Policy, 1993, 39, pp. 195-214.
Walsh, Carl E. “Monetary Theory and Policy”, ed. 2, The MIT Press, 2003.
Woodford, Michael. “The Taylor Rule and Optimal Monetary Policy.” American Economic Review, 2001, 91, pp. 232–237.
Woodford, Michael. “Interest and Prices: Foundations of a Theory of Monetary Policy.” Princeton University Press, 2003.
Woodford, Michael. “Interpreting Inflation Persistence: Comments on the Conference on Quantitative Evidence on Price Determination.” Journal of Money, Credit and Banking, 2007, 39, pp. 203–211.
Yun, Tack. “Nominal Price Rigidty, Money Supply Endogeneity, and Business Cycles.” Journal of Monetary Economics, 1996, 37, pp. 345–370.
Zbaracki, Mark J.; Ritson, Mark; Levy, Daniel; Dutta, Shantanu and Bergen, Mark. Managerial and Customer Costs of Price Adjustment: Direct Evidence From Industerial Markets, Review of Economics and Statistics, 2004, 86(2), pp. 514–533.
Available Versions of this Item
- Dual Wage Rigidities: Theory and Some Evidence. (deposited 22. Mar 2010 00:20) [Currently Displayed]