 Firm-Specific or Household-Specific Sticky Wages in the New Keynesian Model?International Journal of Central Banking, 2007, vol. 3, issue 4, 181-240 Abstract: This paper shows that switching the dominant use of household-specific sticky wages in the New Keynesian model (Erceg, Henderson, and Levin 2000) for firm-specific sticky wages has qualitative and quantitative consequences. First, the model with firm-specific sticky wages incorporates endogenous changes in the rate of unemployment, whereas there is no unemployment with household-specific sticky wages. Secondly, business-cycle fluctuations of wage inflation and the real wage are clearly distinguishable. In particular, the real wage is countercyclical after a demand shock under any sensible calibration with firm-specific sticky wages, whereas the model with household-specific sticky wages requires larger wage stickiness than price stickiness. Finally, optimal monetary policy is more oriented to stabilizing price inflation with firm-specific sticky wages, and is more oriented to stabilizing the output gap and wage inflation with household-specific sticky wages. JEL-codes: E12 E24 E32 J30 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2007:q:4:a:6 Access Statistics for this article International Journal of Central Banking is currently edited by Loretta J. Mester More articles in International Journal of Central Banking from International Journal of Central Banking |
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