Real wage rigidities and the cost of disinflations: A comment on Blanchard and Galí
Guido Ascari () and
No 1312, Kiel Working Papers from Kiel Institute for the World Economy (IfW)
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: Sticky Prices; Real Rigidities; Disinflation (search for similar items in EconPapers)
JEL-codes: E52 E31 (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:ifwkwp:1312
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