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Calvo Wages in a Search Unemployment Model

Vincent Bodart, Olivier Pierrard () and Henri Sneessens ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: RBC models with search unemployment and wage renegotiation generate too much wage volatility and too stable unemployment rate. Shimer (2004) shows that it is possible to reproduce a volatility of unemployment similar to that observed in actual economies by imposing full real wage rigidity. We use a similar model but with Calvo wage contracts. The models with full wage flexibility or full wage rigidity are obtained as particular cases. We show that a contract length of about six quarters fits best the observed cyclical properties of wages and unemployment.

Keywords: search unemployment; Calvo wage; cyclical properties. (search for similar items in EconPapers)
JEL-codes: E24 E32 J30 J41 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

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Working Paper: Calvo Wages in a Search Unemployment Model (2006) Downloads
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