Unemployment as excess supply of labor: Implications for wage and price inflation

Miguel Casares

Journal of Monetary Economics, 2010, vol. 57, issue 2, 233-243

Abstract: The introduction of both market-clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the New Keynesian model. As a result, wage inflation dynamics are forward-looking and depend negatively on the rate of unemployment. Moreover, both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in Erceg et al. (2000), though with different slope coefficients. In an equal-volatility comparison, the model with unemployment conveys less price stickiness and more wage stickiness.

Keywords: Market-clearing; wages; Sticky; wages; Unemployment (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (15)

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