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The frontier of indeterminacy in a neo-Keynesian model with staggered prices and wages

Author

Listed:
  • Alexis Blasselle

    (LJLL - Laboratoire Jacques-Louis Lions - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique)

  • Aurélien Poissonnier

    (LMA - Laboratoire de macroéconomie - Centre de Recherche en Économie et STatistique (CREST), X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

Abstract

We consider a neo-Keynesian model with staggered prices and wages. When both contracts exhibit sluggish adjustment to market conditions, the policy maker faces a trade-off between stabilizing three welfare relevant variables: output, price inflation and wage inflation. We consider a monetary policy rule designed accordingly: the Central Banker can react to both inflations and the output gap. We generalize the Taylor principle in this case: it embeds the frontier of determinacy derived with staggered prices only, it is also symmetric in price and wage inflations. It follows that when staggered labour contracts are considered, wage inflation is also an illegible and efficient target for the Central Banker.

Suggested Citation

  • Alexis Blasselle & Aurélien Poissonnier, 2013. "The frontier of indeterminacy in a neo-Keynesian model with staggered prices and wages," Working Papers hal-00915913, HAL.
    • Handle: RePEc:hal:wpaper:hal-00915913
    Note: View the original document on HAL open archive server: https://hal.science/hal-00915913
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    Cited by:

    1. Jenny Chan, 2020. "Monetary Policy and Sentiment-Driven Fluctuations," Discussion Papers 2020, Centre for Macroeconomics (CFM).
    2. Zhao, Junzhu, 2023. "Wealth in utility, the Taylor principle and determinacy," Journal of Macroeconomics, Elsevier, vol. 76(C).

    More about this item

    Keywords

    Taylor Principle; Dynamic Stochastic Général Equilibrium Model; Monetary Policy Rule; Sun Spot Equilibria; Taylor Principle.;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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