Real Wage Rigidities and the Cost of Disinflations
Guido Ascari () and
Christian Merkl ()
Kiel Working Papers from Kiel Institute for the World Economy
This paper analyzes the cost of disinflation under real wage rigidities in a micro-founded New Keynesian model. Unlike Blanchard and Galí (2007) who carried out a similar analysis in a linearized framework, we take non-linearities into account. We show that the results change dramatically, both qualitatively and quantitatively, for the steady states and for the dynamic adjustment paths. In particular, a disinflation implies a prolonged slump without any need for real wage rigidities.
Keywords: Disinflation; Sticky Prices; Real Rigidities (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
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Journal Article: Real Wage Rigidities and the Cost of Disinflations (2009)
Working Paper: Real Wage Rigidities and the Cost of Disinflations (2007)
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Persistent link: /RePEc:kie:kieliw:1312
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