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Downward Nominal Wage Rigidity and Inflation Dynamics during and after the Great Recession

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  • TOMOHIDE MINEYAMA

Abstract

In this paper, I develop a New Keynesian model that embeds heterogeneous workers with asymmetric wage adjustment costs to address two inflation puzzles: missing deflation during the Great Recession and the subsequent missing inflation. When the wage adjustment costs are estimated according to U.S. microwage data, downward nominal wage rigidity emerges, which flattens the observed price Phillips curve during and after recessions. Endogenous evolution of the cross‐sectional wage distribution generates nonlinear dynamics including the sign, size, and state dependence. These nonlinearities enable the model to address the inflation puzzles as well as matching microevidence on wage adjustments.

Suggested Citation

  • Tomohide Mineyama, 2023. "Downward Nominal Wage Rigidity and Inflation Dynamics during and after the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1213-1244, August.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:5:p:1213-1244
    DOI: 10.1111/jmcb.12982
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