Wage Stickiness and Unemployment Fluctuations: An Alternative Approach

Miguel Casares, Antonio Moreno () and Jesús Vázquez

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

Abstract: Erceg, Henderson and Levin (2000, Journal of Monetary Economics) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using Bayesian econometric techniques, both models are estimated with U.S. quarterly data of the Great Moderation. Estimation results are similar and provide a good empirical fit, with the crucial difference that our proposal delivers unemployment fluctuations. Thus, second-moment statistics of U.S. unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.

Keywords: Wage Rigidity; Price Rigidity; Unemployment (search for similar items in EconPapers)
JEL-codes: C32 E30 (search for similar items in EconPapers)
Pages: pages
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-hpe and nep-lab
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Citations: View citations in EconPapers (1)

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Journal Article: Wage stickiness and unemployment fluctuations: an alternative approach (2012)
Working Paper: Wage Stickiness and Unemployment Fluctuations: An Alternative Approach (2009)
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