A Real Business Cycle Model of the Phillips Curve

Muñoz Rafael
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Muñoz Rafael: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 1998005, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The aim of this article is to show that RBC models can account for the so-called Phillips curve. We propose an efficiency wage model in which money is introduced via a cash-in-advance constraint. Households choose how much effort to devote by comparing present real and nominal wages with past ones. This special intertemporal effort function implies wage sluggishness and a higher volatility of employment compared to standard RBC models. It also reduces a negative contemporaneous correlation between inflation and output, one of the more difficult moments to match for a cash-in-advance model. The model allows to match labor market moments and also to build up a transmission mechanism that affects employment through nominal wage growth. The model generates a Phillips curve that is able to mimic US data.

Keywords: Efficiency wage; RBC; wage sluggishness; cash-in-advance; Phillips curve (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Pages: 18
Date: 1998-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1998005

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