Inflation targets and endogenous wage markups in a New Keynesian model
Giovanni Di Bartolomeo (),
Patrizio Tirelli () and
wp.comunite from Department of Communication, University of Teramo
Empirical contributions show that wage re-negotiations take place while expiring contracts are still in place. This is captured by assuming that nominal wages are pre-determined. As a consequence, wage setters act as Stackelberg leaders, whereas in the typical New Keynesian model the wage-setting rule implies that they play a Nash game. We present a DSGE New Keynesian model with pre-determined wages and money entering the representative household's utility function and show how these assumptions are sufficient to identify an inverse relationship between the inflation target and the wage markup (and thus employment) both in the short and the long run. This is due to the complementary effects that wage claims and the inflation target have on money holdings. Model estimates suggest that a moderate long-run inflation rate generates non-negligible output gains.
Keywords: E52; E58; J51; E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Journal Article: Inflation targets and endogenous wage markups in a New Keynesian model (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ter:wpaper:0079
Access Statistics for this paper
More papers in wp.comunite from Department of Communication, University of Teramo
Series data maintained by Giovanni Di Bartolomeo ().