Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/55551 
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dc.contributor.authorBlanchard, Olivieren
dc.contributor.authorGalí, Jordien
dc.date.accessioned2006-01-03-
dc.date.accessioned2012-02-23T07:59:30Z-
dc.date.available2012-02-23T07:59:30Z-
dc.date.issued2005-
dc.identifier.urihttp://hdl.handle.net/10419/55551-
dc.description.abstractMost central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade-off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new Keynesian framework, which we call the divine coincidence, is due to a special feature of the model: the absence of nontrivial real imperfections. We focus on one such real imperfection, namely, real wage rigidities. When the baseline new Keynesian model is extended to allow for real wage rigidities, the divine coincidence disappears, and central banks indeed face a trade-off between stabilizing inflation and stabilizing the welfare-relevant output gap. We show that not only does the extended model have more realistic normative implications, but it also has appealing positive properties. In particular, it provides a natural interpretation for the dynamic inflation-unemployment relation found in the data.en
dc.language.isoengen
dc.publisher|aFederal Reserve Bank of Boston |cBoston, MAen
dc.relation.ispartofseries|aWorking Papers |x05-14en
dc.subject.jelE32en
dc.subject.jelE50en
dc.subject.ddc330en
dc.subject.keywordoil price shocksen
dc.subject.keywordinflation targetingen
dc.subject.keywordmonetary policyen
dc.subject.keywordinflation inertiaen
dc.subject.stwReallohnen
dc.subject.stwLohnrigiditäten
dc.subject.stwArbeitslosigkeiten
dc.subject.stwGeldpolitisches Zielen
dc.titleReal wage rigidities and the new Keynesian model-
dc.typeWorking Paperen
dc.identifier.ppn505088495en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen

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