Intrinsic Persistence of Wage Inflation in New Keynesian Models of the Business Cycles

Giovanni Di Bartolomeo () and Marco Di Pietro ()

Journal of Money, Credit and Banking, 2017, vol. 49, issue 6, 1161-1195

Abstract: We derive and estimate a New Keynesian wage Phillips curve that accounts for intrinsic inertia. In line with microevidence on wage setting, we consider a wage‐setting model featuring an upward‐sloping hazard function, based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset. Our wage Phillips curve embeds also backward terms. We test the hazard function slope using generalized method of moment estimation. Then, placing our equation in a small‐scale New Keynesian model, we investigate its dynamic properties using Bayesian estimation. Model comparison shows that our model outperforms commonly used alternative methods to introduce persistence.

Date: 2017
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Citations: View citations in EconPapers (9)

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https://doi.org/10.1111/jmcb.12412

Related works:
Working Paper: Intrinsic persistence of wage inflation in New Keynesian models of the business cycles (2020)
Working Paper: Intrinsic persistence of wage inflation in New Keynesian models of the business cycles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:49:y:2017:i:6:p:1161-1195

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