IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v26y2002i4p653-680.html
   My bibliography  Save this article

Staggered wages and output dynamics under disinflation

Author

Listed:
  • Ascari, Guido
  • Rankin, Neil

Abstract

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. The money wage is fixed for two periods, and is chosen according to intertemporal optimization. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ascari, Guido & Rankin, Neil, 2002. "Staggered wages and output dynamics under disinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 653-680, April.
    • Handle: RePEc:eee:dyncon:v:26:y:2002:i:4:p:653-680
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(00)00077-4
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
    2. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-113, May.
    3. Cho, Jang-Ok & Cooley, Thomas F, 1995. "The Business Cycle with Nominal Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 13-33, June.
    4. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    5. Benabou, Roland & Konieczny, Jerzy D, 1994. "On Inflation and Output with Costly Price Changes: A Simple Unifying Result," American Economic Review, American Economic Association, vol. 84(1), pages 290-297, March.
    6. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, vol. 2(3), pages 383-400, September.
    7. Romer, David, 1990. "Staggered price setting with endogenous frequency of adjustment," Economics Letters, Elsevier, vol. 32(3), pages 205-210, March.
    8. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
    9. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-686, July.
    10. Marcus Miller & Alan Sutherland, 1993. "Contracts, Credibility, and Common Knowledge: Their Influence on Inflation Convergence," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 178-201, March.
    11. Rankin, Neil, 1998. "Nominal rigidity and monetary uncertainty in a small open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(5), pages 679-702, May.
    12. Ball, Laurence, 1994. "Credible Disinflation with Staggered Price-Setting," American Economic Review, American Economic Association, vol. 84(1), pages 282-289, March.
    13. V. Bhaskar, 2002. "On Endogenously Staggered Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 97-116.
    14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    15. Guillermo Calvo & Mervyn King (ed.), 1998. "The Debt Burden and its Consequences for Monetary Policy," International Economic Association Series, Palgrave Macmillan, number 978-1-349-26077-5, December.
    16. Rankin, Neil, 1998. "Nominal rigidity and monetary uncertainty," European Economic Review, Elsevier, vol. 42(1), pages 185-199, January.
    17. Michael Woodford, 1998. "Control of the Public Debt: A Requirement for Price Stability?," International Economic Association Series, in: Guillermo Calvo & Mervyn King (ed.), The Debt Burden and its Consequences for Monetary Policy, chapter 5, pages 117-158, Palgrave Macmillan.
    18. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-1277, November.
    19. Blanchard, Olivier Jean & Summers, Lawrence H, 1988. "Beyond the Natural Rate Hypothesis," American Economic Review, American Economic Association, vol. 78(2), pages 182-187, May.
    20. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-777, October.
    21. Guillermo A. Calvo, 1983. "Staggered Contracts and Exchange Rate Policy," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 235-258, National Bureau of Economic Research, Inc.
    22. Ireland, Peter N., 1995. "Optimal disinflationary paths," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1429-1448, November.
    23. repec:bla:scandj:v:98:y:1996:i:4:p:521-39 is not listed on IDEAS
    24. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, April.
    25. Danziger, Leif, 1988. "Costs of Price Adjustment and the Welfare Economics of Inflation and Disinflation," American Economic Review, American Economic Association, vol. 78(4), pages 633-646, September.
    26. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
    27. Driffill, John & Miller, Marcus, 1993. "Learning and Inflation Convergence in the ERM," Economic Journal, Royal Economic Society, vol. 103(417), pages 369-378, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050, Elsevier.
    2. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, vol. 2(3), pages 383-400, September.
    3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    4. Guido Ascari, 2004. "Staggered Prices and Trend Inflation: Some Nuisances," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 642-667, July.
    5. Latsos Sophia, 2018. "Real Wage Effects of Japan’s Monetary Policy," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 69(1), pages 177-215, July.
    6. Jean-Pascal Bénassy, 2006. "Dynamic models with non clearing markets," Working Papers halshs-00590433, HAL.
    7. repec:ebl:ecbull:v:5:y:2002:i:5:p:1-7 is not listed on IDEAS
    8. Michael Kiley, 2002. "The lead of output over inflation in sticky price models," Economics Bulletin, AccessEcon, vol. 5(5), pages 1-7.
    9. Guido Ascari, 2003. "Price/Wage Staggering and Persistence: A Unifying Framework," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 511-540, September.
    10. Thorvardur Tjörvi Ólafsson, 2006. "The New Keynesian Phillips Curve: In Search of Improvements and Adaptation to the Open Economy," Economics wp31_tjorvi, Department of Economics, Central bank of Iceland.
    11. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    12. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, vol. 21(1), pages 1-32, March.
    13. Christopher J. Erceg, 1997. "Nominal wage rigidities and the propagation of monetary disturbances," International Finance Discussion Papers 590, Board of Governors of the Federal Reserve System (U.S.).
    14. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May.
    15. Greg Tkacz, 2000. "Fractional Cointegration and the Demand for M1," Staff Working Papers 00-12, Bank of Canada.
    16. Martin S. Eichenbaum & Jonas D. M. Fisher, 2003. "Evaluating the Calvo model of sticky prices," Working Paper Series WP-03-23, Federal Reserve Bank of Chicago.
    17. Dotsey, Michael & King, Robert G., 2005. "Implications of state-dependent pricing for dynamic macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 213-242, January.
    18. Ahrens, Steffen & Snower, Dennis J., 2014. "Envy, guilt, and the Phillips curve," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 69-84.
    19. Bonomo, Marco Antônio Cesar & Carvalho, Carlos Viana de, 2003. "Endogenous time-dependent rules and the costs of disinflation with imperfect credibility," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 505, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    20. K. Huang & Z. Liu & L. Phaneuf, "undated". "Staggered contracts, intermediate goods and the dynamic effects of monetary shocks on output, inflation and real wages," Working Papers 2000-20, Utah State University, Department of Economics.
    21. Galí, Jordi & Gertler, Mark, 1999. "Inflation Dynamics: A Structural Economic Analysis," CEPR Discussion Papers 2246, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:26:y:2002:i:4:p:653-680. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.