Wage stickiness and unemployment fluctuations: an alternative approach

Miguel Casares, Antonio Moreno () and Jesús Vázquez

SERIEs: Journal of the Spanish Economic Association, 2012, vol. 3, issue 3, 395-422

Abstract: Erceg et al. (J Monet Econ 46:281–313, 2000 ) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using a Bayesian econometric approach, both models are estimated with US quarterly data of the Great Moderation. Estimation results are similar in the two models and both provide a good empirical fit, with the crucial difference that our model delivers unemployment fluctuations. Thus, second-moment statistics of the US rate of unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. Demand-side shocks play a more important role than technology innovations or cost-push shock in explaining both output and unemployment fluctuations. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption. Copyright The Author(s) 2012

Keywords: Wage rigidity; Price rigidity; Unemployment; C32; E30 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Wage Stickiness and Unemployment Fluctuations: An Alternative Approach (2009)
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DOI: 10.1007/s13209-011-0079-y

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