Macroeconomic Dynamics with Rigid Wage Contracts

Tobias Broer, Karl Harmenberg, Per Krusell and Erik Öberg

American Economic Review: Insights, 2023, vol. 5, issue 1, 55-72

Abstract: We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with recontracting as in Calvo (1983). The resulting wage-rigidity framework dampens income effects in the short run, thus allowing significant responses of hours to aggregate shocks. In reduced form, the model dynamics are similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts are reset frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are never reset, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988).

JEL-codes: E24 J22 J23 J24 J31 J41 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aeri.20210672 (application/pdf)
https://www.aeaweb.org/doi/10.1257/aeri.20210672.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/aeri.20210672.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2023)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2023)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2021)
Working Paper: Macroeconomic Dynamics with Rigid Wage Contracts (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aerins:v:5:y:2023:i:1:p:55-72

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aeri.20210672

Access Statistics for this article

American Economic Review: Insights is currently edited by Amy Finkelstein

More articles in American Economic Review: Insights from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().