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WPnull/09 Wage Stickiness and Unemployment Fluctuations: An Alternative Approach
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  • Miguel Casares (
    Departamento de Economía, Universidad Pública de Navarra
  • Antonio Moreno (
    Departamento de Economía, Universidad de Navarra
  • Jesús Vázquez (
    Departamento de Fundamentos del Análisis Económico II, Universidad del País Vasco

Erceg, Henderson and Levin (2000, Journal of Monetary Economics) 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 Bayesian econometric techniques, both models are estimated with U.S. quarterly data of the Great Moderation. Estimation results are similar and provide a good empirical fit, with the crucial difference that our proposal delivers unemployment fluctuations. Thus, second-moment statistics of U.S. unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.

Classification JEL:C32, E30

Keywords:Wage Rigidity, Price Rigidity, Unemployment

Number of Pages:37

Creation Date:2009-08-13




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Raúl Bajo

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