Real wage rigidities and the cost of disinflations: A comment on Blanchard and Galí

Guido Ascari and Christian Merkl

No 1312, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: 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: E31 E52 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1312

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