Sticky wages in a world of ideas

Kevin X. D. Huang, Munechika Katayama, Mototsugu Shintani and Takayuki Tsuruga

Economic Inquiry, 2022, vol. 60, issue 4, 1757-1781

Abstract: This paper examines the implications of idea production and knowledge capital for monetary business cycles. We construct a sticky‐wage model where workers produce goods based on firm‐specific knowledge capital and researchers develop new ideas aided by economywide knowledge. As a quantitatively small group in the economy, researchers are inconsequential for the real effects of monetary shocks when the returns to research are low. However, when the returns to research are high, the result can be overturned. Monetary shocks can have significant real effects, even if wages are perfectly flexible for workers, who are quantitatively dominant in the economy.

Date: 2022
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https://doi.org/10.1111/ecin.13090

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Working Paper: Sticky Wages in a World of Ideas (2022)
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