Intrinsic persistence of wage inflation in New Keynesian models of the business cycles
Giovanni Di Bartolomeo () and
Marco Di Pietro ()
No 55, Dynare Working Papers from CEPREMAP
Our paper derives and estimates a New Keynesian wage Phillips curve that accounts for intrinsic inertia. Our approach considers a wage-setting model featuring an upward-sloping hazard function, that is based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset. According to our specification, we obtain a wage Phillips curve that also includes backward-looking terms, which account for persistence. We test the slope of the hazard function using GMM 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.
Keywords: duration-dependent wage adjustments; intrinsic inflation persistence; DSGE models; hybrid Phillips curves; model comparison (search for similar items in EconPapers)
JEL-codes: C11 E24 E31 E32 (search for similar items in EconPapers)
Pages: 33 pages
New Economics Papers: this item is included in nep-dge and nep-mac
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Journal Article: Intrinsic Persistence of Wage Inflation in New Keynesian Models of the Business Cycles (2017)
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:cpm:dynare:055
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