EconPapers    
Economics at your fingertips  
 

Dynamics and monetary policy in a fair wage model of the business cycle

David de la Croix (), Grégory de Walque () and Raf Wouters ()

No 2006061, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: We first build a fair wage model in which effort varies over the business cycle. This mechanism decreases the need for other sources of sluggishness to explain the observed high inflation persistence. Second, we confront empirically our fair wage model with a New Keynesian model based on the standard assumption of monopolistic competition in the labor market. We show that, in terms of overall fit, the fair wage model outperforms the New Keynesian one. The extension of the fair wage model with lagged wage is judged insignificant by the data, but the extension based on a rent sharing argument including firm’s productivity gains in the fair wage is not. Looking at the implications for monetary policy, we conclude that the additional trade-off problem created by the inefficient real wage behavior significantly affect nominal interest rates and inflation outcomes

Keywords: Efficiency wage; effort; inflation persistence; monetary policy (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2006-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://sites.uclouvain.be/econ/DP/IRES/2006-61.pdf (application/pdf)

Related works:
Working Paper: Dynamics and monetary policy in a fair wage model of the business cycle (2007) Downloads
Working Paper: Dynamics and monetary policy in a fair wage model of the business cycle (2006) Downloads
Working Paper: Dynamics and monetary policy in a fair wage model of the business cycle (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2006061

Access Statistics for this paper

More papers in Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Virginie LEBLANC ().

 
Page updated 2019-10-17
Handle: RePEc:ctl:louvec:2006061