Calvo Wages in a Search Unemployment Model
Olivier Pierrard () and
Henri Sneessens ()
No 2521, IZA Discussion Papers from Institute of Labor Economics (IZA)
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 and we obtain a microfounded equation of real wage rigidities. 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)
Pages: 12 pages
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
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Working Paper: Calvo Wages in a Search Unemployment Model (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp2521
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