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Real Wage Rigidities and the Cost of Disinflations

Guido Ascari () and Christian Merkl ()

Kiel Working Papers from Kiel Institute for the World Economy

Abstract: 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
Date: 2007-02
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Related works:
Journal Article: Real Wage Rigidities and the Cost of Disinflations (2009) Downloads
Working Paper: Real Wage Rigidities and the Cost of Disinflations (2007) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:kie:kieliw:1312

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