Sticky Prices, Sticky Wages, and also Unemployment

Miguel Casares

Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra from Departamento de Economía - Universidad Pública de Navarra

Abstract: This paper shows a New Keynesian model where wages are set at the value that matches household´s labor supply with firm´s labor demand. Subsequently, wage stickiness brings industry-level unemployment fluctuations. After aggregation, the rate of wage in?ation is negatively related to unemployment, as in the original Phillips (1958) curve, with an additional term that provides forward-looking dynamics. The supply-side of the model can be captured with dynamic expressions equivalent to those obtained in Erceg, Henderson, and Levin (2000), though with different slope coefficients. Impulse-response functions from a technology shock illustrate the inter-actions between sticky prices, sticky wages and unemployment.

Keywords: new Keynesian model; sticky wages; unemployment (search for similar items in EconPapers)
JEL-codes: E12 E24 E32 J30 (search for similar items in EconPapers)
Pages: pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
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