Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82402
Authors: 
Jonsson, Magnus
Palmqvist, Stefan
Year of Publication: 
2004
Series/Report no.: 
Sveriges Riksbank Working Paper Series 159
Abstract: 
Much empirical evidence suggests that wage increases do not lead to inflation. This paper demonstrates that a 2-sector dynamic general equilibrium model calibrated to the U.S. economy is able to explain this evidence. We quantify the effect of an increased wage-markup on the inflation rate in both the goods sector and the service sector. The mechanisms we emphasize and quantify are changes in relative prices and monetary policy. We find that our model is successful in explaining the empirical evidence. Quantitatively, the relative price effect is more important than monetary policy in mitigating the effect of higher wage-markups.
Subjects: 
Wage-markups
Relative prices
Monetary policy
JEL: 
D43
E31
E52
Document Type: 
Working Paper

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