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Calvo Wages in a Search Unemployment Model

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

No 2521, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 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
Date: 2006-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
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