Staggered contracts and persistence: microeconomic foundations and macroeconomic dynamics

Jean-Pascal Benassy

No 2003021, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We develop in this article a new form of wage contracts similar in spirit to those developed by Calvo (1983), and integrate these contracts into a dynamic stochastic grneral equilibrium model. Rational wage setting by utility maximizing trade-unions is explicitly modelled. We derive the optimal wage contracts, and compute the dynamic macroeconomic response to monetary shocks. It is shown that, unlike in most traditional models, this response can display strong persistence, a hump shaped response and positive autocorrelations in output and employment variations. All these results are obtained in a model with explicit closed-form solutions.

Keywords: Persistence; Staggered wages; Wage contracts (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 20
Date: 2003-06-01
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Citations: View citations in EconPapers (1)

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Journal Article: Staggered contracts and persistence: microeconomic foundations and macroeconomic dynamics (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2003021

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