New Keynesian models with labor market rigidities: a critical survey

Marianna Riggi ()

No 102, Working Papers from Sapienza University of Rome, Department of Public Economics

Abstract: The labor market is receiving increasing attention in the New Keynesian literature. In this paper I critically survey this literature in order to highlight the role played by wage rigidities in the explanation of fluctuations caused by technology shocks. To this aim, I present a DSGE model with sticky prices, nominal wage rigidities, and hiring costs. The comparison between this model and Blanchard and Gali (2006) highlights the non trivial differences which exist in the way nominal wage and real wage rigidities drive the economy’s dynamics. My conclusion is that models incorporating nominal wage rigidities and some degree of price stickiness provide a better account of macroeconomic dynamics than models with real wage rigidities.

Keywords: new Keynesian model; labor market frictions; real wage rigidities; nominal wage rigidities; technology shock; employment. (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2007-10
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