Nominal Wage Contracts, Labor Adjustment Costs and the Business Cycle

Zuzana Janko (zjanko@sfsu.edu)

Review of Economic Dynamics, 2008, vol. 11, issue 2, 434-448

Abstract: Previous work of monetary dynamic stochastic general equilibrium models with nominal rigidity a la Taylor, particularly the Cho-Cooley model, was abandoned in favor of the New-Keynesian analysis due to the model's failure to deliver business cycle statistics that match the U.S. economy along some key dimensions. In this paper, we take a step in revitalizing the Cho-Cooley avenue of research. We add empirically plausible labor adjustment costs (LAC) into a model with nominal wage rigidity and find that with LAC our model is able to overcome some of the shortcomings otherwise present in the Cho-Cooley framework, specifically high standard deviations of real variables and a countercyclical productivity. (Copyright: Elsevier)

Keywords: Taylor nominal wage contracts; Labor adjustment costs; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 E51 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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DOI: 10.1016/j.red.2007.08.004

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