Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/77794 
Year of Publication: 
2012
Citation: 
[Journal:] SERIEs - Journal of the Spanish Economic Association [ISSN:] 1869-4195 [Volume:] 3 [Issue:] 3 [Publisher:] Springer [Place:] Heidelberg [Year:] 2012 [Pages:] 395-422
Publisher: 
Springer, Heidelberg
Abstract: 
Erceg et al. (J Monet Econ 46:281313, 2000) 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 a Bayesian econometric approach, bothmodels are estimated with US quarterly data of the Great Moderation. Estimation results are similar in the two models and both provide a good empirical fit, with the crucial difference that our model delivers unemployment fluctuations. Thus, second-moment statistics of the US rate of unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. Demand-side shocks play a more important role than technology innovations or cost-push shock in explaining both output and unemployment fluctuations. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.
Subjects: 
wage rigidity
price rigidity
unemployment
JEL: 
C32
E30
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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