IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/22647.html
   My bibliography  Save this paper

Interacting nominal and real labour market rigidities

Author

Listed:
  • Vogel, Lukas

Abstract

This note analyses the interaction between nominal wage stickiness and costly employment adjustment in a small closed-economy New Keynesian model with simple rule-based or optimal monetary policy. The results show (1) the costs of nominal and real rigidity to depend on the policy regime, (2) optimal policy to substantially contain the welfare loss, and (3) the absence of quantitatively important second-best interaction, suggesting that reducing rigidity along one dimension alone does not risk reducing overall welfare.

Suggested Citation

  • Vogel, Lukas, 2008. "Interacting nominal and real labour market rigidities," MPRA Paper 22647, University Library of Munich, Germany, revised May 2010.
    • Handle: RePEc:pra:mprapa:22647
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/22647/2/MPRA_paper_22647.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lechthaler, Wolfgang & Snower, Dennis J., 2008. "Quadratic labor adjustment costs and the New-Keynesian model," Kiel Working Papers 1453, Kiel Institute for the World Economy (IfW Kiel).
    2. Frank Smets & Raf Wouters, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
    3. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    4. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
    5. Jean‐Guillaume Sahuc & Frank Smets, 2008. "Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium‐Scale DSGE Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 505-521, March.
    6. Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 899-927.
    7. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312, National Bureau of Economic Research, Inc.
    8. Guido Ascari & Christian Merkl, 2009. "Real Wage Rigidities and the Cost of Disinflations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 417-435, March.
    9. Romain Duval & Lukas Vogel, 2012. "How Do Nominal and Real Rigidities Interact? A Tale of the Second Best," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1455-1474, October.
    10. Marco Ratto & Werner Roeger & Jan in 't Veld, 2010. "Using a DSGE model to look at the recent boom-bust cycle in the US," European Economy - Economic Papers 2008 - 2015 397, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    11. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2004. "The Cost of Nominal Inertia in NNS Models," NBER Working Papers 10889, National Bureau of Economic Research, Inc.
    12. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2007. "The Cost of Nominal Rigidity in NNS Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1563-1586, October.
    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. Romain Duval & Lukas Vogel, 2012. "How Do Nominal and Real Rigidities Interact? A Tale of the Second Best," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1455-1474, October.
    2. Ulrich Gunter, 2019. "Estimating and forecasting with a two-country DSGE model of the Euro area and the USA: the merits of diverging interest-rate rules," Empirical Economics, Springer, vol. 56(4), pages 1283-1323, April.
    3. Carlos Medel, 2017. "Forecasting Chilean inflation with the hybrid new keynesian Phillips curve: globalisation, combination, and accuracy," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 20(3), pages 004-050, December.
    4. Stephanie Schmitt-Grohe & Martin Uribe, 2005. "Optimal Fiscal and Monetary Policy in a Medium-Scale Macroeconomic Model: Expanded Version," NBER Working Papers 11417, National Bureau of Economic Research, Inc.
    5. Igor Vetlov & Tibor Hlédik & Magnus Jonsson & Henrik Kucsera & Massimiliano Pisani, 2011. "Potential Output in DSGE Models," Bank of Lithuania Working Paper Series 9, Bank of Lithuania.
    6. Marc P. Giannoni & Jean Boivin, 2005. "DSGE Models in a Data-Rich Environment," Computing in Economics and Finance 2005 431, Society for Computational Economics.
    7. Thomas Le Barbanchon & Olivier Simon, 2012. "Les marchés du travail français et américain face aux chocs conjoncturels des années 1986 à 2007 : une modélisation DSGE," Économie et Statistique, Programme National Persée, vol. 451(1), pages 69-90.
    8. Uhlig, Harald, 2007. "Monetary policy in Europe vs the US: what explains the difference?," MPRA Paper 14119, University Library of Munich, Germany.
    9. Avouyi-Dovi, Sanvi & Sahuc, Jean-Guillaume, 2011. "On the welfare costs of misspecified monetary policy objectives," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 151-161, June.
    10. Annabelle Mourougane & Lukas Vogel, 2009. "Speed of Adjustment to Selected Labour Market and Tax Reforms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 51(4), pages 500-519, December.
    11. Francesco Furlanetto & Paolo Gelain & Marzie Taheri Sanjani, 2021. "Output Gap, Monetary Policy Trade-offs, and Financial Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 52-70, July.
    12. Ricardo Nunes & Jinill Kim & Jesper Linde & Davide Debortoli, 2014. "Designing a Simple Loss Function for the Fed: Does the Dual Mandate Make Sense?," 2014 Meeting Papers 1043, Society for Economic Dynamics.
    13. Davide Debortoli & Jinill Kim & Jesper Lindé & Ricardo Nunes, 2019. "Designing a Simple Loss Function for Central Banks: Does a Dual Mandate Make Sense?," The Economic Journal, Royal Economic Society, vol. 129(621), pages 2010-2038.
    14. Stepahnie Schmitt-Grohé & Martín Uribe, 2007. "Optimal Inflation Stabilization in a Medium-Scale Macroeconomic Model," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 5, pages 125-186, Central Bank of Chile.
    15. 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.
    16. repec:spo:wpmain:info:hdl:2441/4fdr6e70128sjpliirso4bb2bo is not listed on IDEAS
    17. Charlotta Groth & Hashmat Khan, 2010. "Investment Adjustment Costs: An Empirical Assessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1469-1494, December.
    18. Patrick Fève & Julien Matheron & Jean‐Guillaume Sahuc, 2010. "Disinflation Shocks in the Eurozone: A DSGE Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2‐3), pages 289-323, March.
    19. Givens, Gregory E., 2016. "On the gains from monetary policy commitment under deep habits," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 19-36.
    20. Stephanie Schmitt-Grohé & Martín Uribe, 2006. "Optimal Fiscal and Monetary Policy in a Medium-Scale Macroeconomic Model," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 383-462, National Bureau of Economic Research, Inc.
    21. Dixon, Huw & Kara, Engin, 2011. "Contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized Taylor economy," European Economic Review, Elsevier, vol. 55(2), pages 280-292, February.

    More about this item

    Keywords

    wage stickiness; employment adjustment costs; second best;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

    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:pra:mprapa:22647. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.