EconPapers    
Economics at your fingertips  
 

Credit Crunch and Downward Nominal Wage Rigidities

Jean-François Rouillard ()

Cahiers de recherche from Departement d'Economique de l'École de gestion à l'Université de Sherbrooke

Abstract: Through the lens of a dynamic model that features financial frictions and downward nominal wage rigidities (DNWR), I simulate a credit crunch similar to the one experienced by the US during the 2007-09 recession. Since the constraint on nominal wage in ation binds, this induces important cutbacks in hours worked. For a 2% infl ation- target regime, the minimal deviation of hours worked is 2.15 greater with DNWR than with exible wages. Total losses in hours worked are also 27% lower when the infl ation target is elevated from 2% to 4%. Moreover, the model can account for a large part of the upward shift in the labor wedge that occurred during the recession. This result arises because the marginal rate of substitution of consumption for leisure significantly deviates from real wages with DNWR.

Keywords: borrowing constraints; monetary policy; in flation target; labor wedge. (search for similar items in EconPapers)
JEL-codes: E24 E32 E44 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lma and nep-mac
Date: 2017-09
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1705.pdf (application/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:shr:wpaper:17-05

Access Statistics for this paper

More papers in Cahiers de recherche from Departement d'Economique de l'École de gestion à l'Université de Sherbrooke Contact information at EDIRC.
Bibliographic data for series maintained by Luc Savard ().

 
Page updated 2019-04-15
Handle: RePEc:shr:wpaper:17-05