Extending the NAWM with a partial indexation mechanism linking wages and trend productivitiy

Coenen, Gunter (2009): Extending the NAWM with a partial indexation mechanism linking wages and trend productivitiy.

Abstract

This document sets out the details for extending the wage Phillips curve of the New Area-Wide Model (NAWM; cf. Christoffel, Coenen and Warne, 2008) with a partial indexation mechanism linking wages to trend productivity developments. The document first outlines the labour-market setting in which households are offering their labour services. It then derives the first-order condition characterising the optimal wage-setting decision of an individual household as well as the law of motion for the aggregate wage index. Finally, the document derives the implied log-linear wage Phillips curve. An appendix provides additional technical details of the derivations.

• Item Type: MPRA Paper
• Language: English
• Keywords: DSGE modelling,Bayesian inference, forecasting, policy analysis, euro area
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; 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 > E37 - Forecasting and Simulation: Models and Applications

References

Christoffel, Kai, Günter Coenen, and Anders Warne, 2008, The New Area-Wide Model of the Euro Area: A Micro-Founded Open-Economy Model for Forecasting and Policy Analysis, European Central Bank Working Paper No. 944.