Intrinsic persistence of wage inflation in New Keynesian models of the business cycles

Giovanni Di Bartolomeo () and Marco Di Pietro ()

No 55, Dynare Working Papers from CEPREMAP

Abstract: Our paper derives and estimates a New Keynesian wage Phillips curve that accounts for intrinsic inertia. Our approach considers a wage-setting model featuring an upward-sloping hazard function, that is based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset. According to our specification, we obtain a wage Phillips curve that also includes backward-looking terms, which account for persistence. We test the slope of the hazard function using GMM estimation. Then, placing our equation in a small-scale New Keynesian model, we investigate its dynamic properties using Bayesian estimation. Model comparison shows that our model outperforms commonly used alternative methods to introduce persistence.

Keywords: duration-dependent wage adjustments; intrinsic inflation persistence; DSGE models; hybrid Phillips curves; model comparison (search for similar items in EconPapers)
JEL-codes: C11 E24 E31 E32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020-02
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Journal Article: Intrinsic Persistence of Wage Inflation in New Keynesian Models of the Business Cycles (2017)
Working Paper: Intrinsic persistence of wage inflation in New Keynesian models of the business cycles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:dynare:055

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