Real Wage Rigidity and the Taylor Principle

Eurilton Araújo

No 11, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: This paper investigates conditions for equilibrium determinacy under inflation-targeting interest-rate rules when the basic new Keynesian model is extended to incorporate real wage rigidity. I show that the introduction of real wage rigidity increases the determinacy region under forward-looking rules. Moreover, the Taylor principle continues to ensure equilibrium uniqueness under current-looking rules.

Pages: 17 pages
Date: 2008
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