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| Title: | | Real wage rigidities and the cost of disinflations |
| Authors: | | Ascari, Guido Merkl, Christian |
| Issue Date: | | 2009 |
| Citation: | | [Volume:] 41 [Issue:] 2 [Pages:] 417-435 [Journal:] Journal of money, credit and banking : JMCB [ISBN:] 0022-2879 |
| Abstract: | | This paper analyzes the cost of disinflations under real wage rigidities in a micro-founded New Keynesian model. The conventional view is that real wage rigidities can be a useful mechanism to generate a slump in output after a credible disinflationary policy because they prevent the immediate adjustment of inflation. This view is flawed, since it depends on analyzing the model in a linearized framework. Once nonlinearities are taken into account, the results change both qualitatively and quantitatively. Disinflations actually lead to a permanently higher level of output, and real wage rigidities increase the output during the adjustment to the new steady state. |
| Subjects: | | disinflation sticky prices real wage rigidities nonlinearities |
| JEL: | | E31 E50 |
| Persistent Identifier of the first edition: | | doi:10.1111/j.1538-4616.2009.00211.x |
| Document Type: | | Article |
| Appears in Collections: | | Economists Online
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