The Frontier of indeterminacy in a Neo-Keynesian Model with Staggered Prices and Wages

Alexis Blasselle and Aurélien Poissonnier
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Alexis Blasselle: Université Pierre et Marie Curie

No 2013-28, Working Papers from Center for Research in Economics and Statistics

Abstract: We consider a neo-keynesian model with staggered prices and wages. When both contracts exhibit sluggish adjustment to market conditions, the policy maker faces a trade-off between stabilizing three welfare relevant variables : output, price inflation and wage inflation. We consider a monetary policy rule designed accordingly : the Central Banker can react to both inflations and the output gap. We generalize the Taylor principle in this case : it embeds the frontier of determinacy derived with staggered prices only, it is also symmetric in price and wage inflations. It follows that when staggered labour contracts are considered, wage inflation is also an illegible and efficient target for the Central Banker.

Keywords: dynamic stochastic General Equilibrium model; Monetary Policty Rule; Sun Spot Equilibria; Taylor Principle (search for similar items in EconPapers)
JEL-codes: C62 C68 E12 E58 E61 (search for similar items in EconPapers)
Pages: 25
Date: 2013-12
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Related works:
Journal Article: The Taylor principle is valid under wage stickiness (2016)
Working Paper: The frontier of indeterminacy in a neo-Keynesian model with staggered prices and wages (2013)
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