Nominal Wage Inertia in General Equilibrium Models

Nuno Alves

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This paper argues that nominal wage inertia is a structural feature in low-inflation economies. Using a quarterly data set for six G7 countries we show that, unlike price inflation, nominal wage inflation responds sluggishly to both monetary and technology shocks. Accounting for this inertial behavior of nominal wages is a necessary condition for a model to capture the business cycle properties of nominal variables. We present several variants of the Calvo wage model that are able to mimic those properties in a general equilibrium framework. In contrast, models that focus on real wage rigidities or sticky prices fail to match the data.

JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.bportugal.pt/sites/default/files/anexos/papers/wp200415.pdf

Related works:
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:ptu:wpaper:w200415

Access Statistics for this paper

More papers in Working Papers from Banco de Portugal, Economics and Research Department Contact information at EDIRC.
Bibliographic data for series maintained by DEE-NTD ().