A Generalized New Keynesian Model with Wage Stickiness

Rui Wang ()
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Rui Wang: Faculty of Economics, Rissho University, 4-2-16, Osaki, Shinagawa Ward, Tokyo 141-8602, Japan

Journal of International Commerce, Economics and Policy (JICEP), 2022, vol. 13, issue 02, 1-15

Abstract: In this paper, we derive a generalized version of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to study how real imperfections of labor market affect the steady state and dynamics of model given different non-zero annual target inflation rates. The main finding is that, given the same target inflation rate, wage stickiness is more distortionary than the price stickiness. The existence of positive target inflation rate can also change the first-order dynamics of model, amplifying or reducing the dynamic response of model according to the type of exogenous shocks. A relatively high target inflation rate, 2% or 3%, may be preferable to a zero target inflation rate.

Keywords: Price stickiness; wage stickiness; generalized new Keynesian model; distortion (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S1793993322500120

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