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Wage stickiness and unemployment fluctuations: an alternative approach

Author

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  • Miguel Casares
  • Antonio Moreno
  • Jesús Vázquez

Abstract

Erceg et al. (J Monet Econ 46:281–313, 2000 ) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using a Bayesian econometric approach, both models are estimated with US quarterly data of the Great Moderation. Estimation results are similar in the two models and both provide a good empirical fit, with the crucial difference that our model delivers unemployment fluctuations. Thus, second-moment statistics of the US rate of unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. Demand-side shocks play a more important role than technology innovations or cost-push shock in explaining both output and unemployment fluctuations. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption. Copyright The Author(s) 2012

Suggested Citation

  • Miguel Casares & Antonio Moreno & Jesús Vázquez, 2012. "Wage stickiness and unemployment fluctuations: an alternative approach," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 3(3), pages 395-422, September.
    • Handle: RePEc:spr:series:v:3:y:2012:i:3:p:395-422
    DOI: 10.1007/s13209-011-0079-y
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    2. Carl E. Walshn, 2016. "Goals versus Rules as Central Bank Preformance Measures," Book Chapters, Hoover Institution, Stanford University.
    3. Walsh, Carl E, 2015. "Goals and Rules in Central Bank Design," Santa Cruz Department of Economics, Working Paper Series qt3md9p6t5, Department of Economics, UC Santa Cruz.
    4. Carl E. Walsh, 2015. "Day Two Keynote Address: Goals and Rules in Central Bank Design," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 295-352, September.

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    More about this item

    Keywords

    Wage rigidity; Price rigidity; Unemployment; C32; E30;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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