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: LJLL - Laboratoire Jacques-Louis Lions - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique

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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: Taylor Principle; Dynamic Stochastic Général Equilibrium Model; Monetary Policy Rule; Sun Spot Equilibria; Taylor Principle. (search for similar items in EconPapers)
Date: 2013-12-09
New Economics Papers: this item is included in nep-mac
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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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