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2 edition of Nominal wage contracts, adjustment costs and real persistence of monetary shocks. found in the catalog.

Nominal wage contracts, adjustment costs and real persistence of monetary shocks.

C. K. Folkertsma

Nominal wage contracts, adjustment costs and real persistence of monetary shocks.

by C. K. Folkertsma

  • 213 Want to read
  • 33 Currently reading

Published by De Nederlandsche Bank NV in Amsterdam .
Written in English


Edition Notes

SeriesDNB staff reports -- no.30
ContributionsNederlandsche Bank (Amsterdam, Netherlands)
The Physical Object
Pagination34p. :
Number of Pages34
ID Numbers
Open LibraryOL18574969M

monetary shocks but not real shocks. Janko () finds that labor adjustment costs improve the endogeneous propagation mechanism of both monetary and technology shocks in Kim’s () model. 2 We introduce consumption shocks into a simplified version of the Kydland and Prescott () model,File Size: KB. For example, a real wage of $1, per month in a small town may provide a more comfortable life and allow employees to get more for their money than a similar amount in a big city. If inflation is 3 percent and wages increase by 2 percent, the real wage will be -1 percent. In this case, purchasing power will drop despite real wage growth.

Downloadable! Author(s): Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans. Abstract: The authors? model, embodying moderate amounts of nominal rigidities, accounts for the observed inertia in inflation and persistence in output. The key features of their model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. in macroeconomics, a period during which wage contracts and resource prices agreements can be renegotiated; there are no surprises about the economy's actual price level. long- run equilibrium the price level and real GDP that occurs when (1) the actual price level equals the expected price level, (2) real GDP supplied equals potential output.

the wage paid to workers measured in terms of purchasing power; the real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period indexing the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in . A Model with Periodic Wage Contracts (), who emphasized the periodic adjustment of nominal wages rather than the periodic adjustment of prices.1 In the Gray-Fischer-Taylor model, nominal wage contracts are assumed to be negotiated at the This set up leads to temporary real effects of nominal shocks and monetary Size: 2MB.


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Nominal wage contracts, adjustment costs and real persistence of monetary shocks by C. K. Folkertsma Download PDF EPUB FB2

However, after introducing nominal wage contracts as a third friction, the model generates real effects of monetary shocks. It is shown that these real effects are highly persistent for a realistic size of adjustment costs and strongly autocorrelated money growth shocks which are typical for by: 3.

Both nominal wage contracts and labor adjustment costs lead to large changes in the relative volatility of the real wages (denoted by W), however none of the models are able to match the relative volatility found in the U.S. data. Considering monetary shocks alone shows that the importance of these shocks is weakened by labor adjustment by: Abstract.

In this chapter, we present a real business cycle model with interrelated adjustment costs and nominal wage contracts. We show that the combination of these two elements allows to reproduce simultaneously productivity-employment and employment-wage correlations close to the stylized by: 5.

Steve Ambler & Alain Guay & Louis Phaneuf, "Wage Contracts and Labor Adjustment Costs as Endogenous Propagation Mechanisms," Cahiers de recherche CREFE / CREFE Working Pap CREFE, Université du Québec à a, Enrique G, "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol.

81(4), pages. Nominal Wage Contracts, Labor Adjustment Costs and the Business Cycle Article in Review of Economic Dynamics 11(2) February with 15 Reads How we measure 'reads'.

the size of price-adjustment costs has no impact on the persistence of real deviations following a money supply shock, unless there are real rigidities. Hence, this result corroborates CKM’s () main finding in their sticky-price model. This paper is organized as follows.

Section 2 presents the DSGE model with nominal and real rigidi-ties. and by using a new specification of employment adjustment cost similar to that used by Cogley and Nason (). The presence of capital and/or employment adjustment costs in the same model allows a comparison of the contribution of each type of real rigidity in generating the persistence of real effects of monetary Size: KB.

are also important to explain output persistence in response to monetary shocks. Although apparently distinct, the crucial features of these models work through the same channel to increase output persistence. They prevent the rapid change in the real marginal cost after a monetary shock and lead to stronger nominal rigidity.

the nominal distortion allows for nominal shocks to have temporary real effects. Thus, nominal shocks and, by extension, monetary policy, are able to affect fluctuations in both inflation and real variables such as output, employment, unemployment, real wages and the real interest rate.

Start studying MccEachern Ch 11 Aggregate Supply. Learn vocabulary, terms, and more with flashcards, games, and other study tools. If the price level rises by 5 percent and the nominal wage rises 3 percent, the real wage.

how quickly real wages adjust to restore full employment in the labor market. This paper studies the persistent e ects of monetary shocks on output. Previous em-pirical literature documents this persistence, but standard general-equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts.

The paper constructs and estimates a general-equilibrium model with price rigidities, habit formation, and costly capital adjustment. We show that wage and price contracts of reasonable durations can create persistence and a hump in the response of both output and inflation to monetary shocks.

View Show abstract. [Show full abstract] introducing nominal wage contracts as a third friction, the model generates real effects of monetary shocks. It is shown that these real effects are highly persistent for a.

Staggered price-setting and staggered wage-setting are commonly viewed as similar mechanisms in generating persistent real effects of monetary shocks. The major difference between our paper and these is that we provide an analytical decomposition of the effects of monetary shocks on real stock prices into three distinct channels of transmission.

Moreover, Bhamra et al. () study the implications of nominal rigidities in the value of firms debt for the way corporate bond spreads respond to Cited by: spending to a monetary shock in a two-sector New Keynesian model where non-durable prices are sticky and durable goods are flexibly priced.

To this end, we construct and estimate a model that features habit formation, investment adjustment costs, sticky nominal wages, and non-separable preferences between consumption and labor. nominal wages, housing construction adjustment costs, and habit in consumption.

Because labor is the key input in production, nominal wage stickiness induces a great deal of nominal stickiness in. For this reason, we suspect that if menu costs are applied to wage-setting, then the nominal wage rigidity (in the form of wage adjustment costs) can be an important mechanism in propagating monetary shocks.

Indeed, staggering in nominal contracts and menu costs are closely by: 1 REAL AND NOMINAL RIGIDITIES IN THE BRAZILIAN ECONOMY: AN ANALYSIS USING A DSGE MODEL. Thais Waideman Niquito. Marcelo Savino Portugal. Fabrício Tourrucôo.

André Fran. Start studying Macroeconomics Set 3. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Search. Real Wage (nominal wage)/(price level) nominal wages are sticky in the short run and adjust sluggishly (revenue is higher but labor cost is not)- SRAS slopes upward.

Real Rigidities: Labour adjustment cost (% of total add. wage costs) 18 10 Labour supply elasticity (1/κ) 1/ 1/.8 Semi wage elasticity w.

r. t. employment rate (κ/γw) Capital adjustment cost 23 33 Investment adjustment cost 16 12 Consumption: Share of liquidity constrained consumers 63 76 Habit persistence Monetary.The delayed effects of monetary shocks in a two-sector New Keynesian model. and durable spending.

To get around this issue, we adopt a quadratic adjustment cost of nominal wages, which allows for a symmetric equilibrium. The wage adjustment cost function is assumed to be quadratic and zero at the steady state.

the real wage growth has Cited by: 7.costs necessary to sustain nominal wage rigidity as a Nash equilibrium, and inves- tigates the robustness of the results to changes in the model’s parameter values.

3 Kiley () relates models with real rigidities to yet another phenomenon.