Gains from wage Flexibility and the Zero Lower Bound

Roberto Billi and Jordi Galí

No 27386, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze the welfare impact of greater wage flexibility in the presence of an occasionally binding zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.

JEL-codes: E24 E32 E52 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Roberto M. Billi & Jordi Galí, 2021. "Gains from Wage Flexibility and the Zero Lower Bound," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(6), pages 1239-1261, December.
Published as Roberto M. Billi & Jordi Galí, 2021. "Gains from Wage Flexibility and the Zero Lower Bound*," Oxford Bulletin of Economics and Statistics, vol 82(6), pages 1239-1261.

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Related works:
Journal Article: Gains from Wage Flexibility and the Zero Lower Bound (2020)
Working Paper: Gains from Wage Flexibility and the Zero Lower Bound (2020)
Working Paper: Gains from Wage Flexibility and the Zero Lower Bound (2019)
Working Paper: Gains from wage flexibility and the zero lower bound (2019)
Working Paper: Gains from Wage Flexibility and the Zero Lower Bound (2018)
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