Staggered Wage-Setting and Output Persistence
University of Aarhus Dept. of Economics WP 1998-14
Posted: 9 Jan 1999
Date Written: 1998
Persistent real effects of nominal shocks is considered in an intertemporal macromodel with capital accumulation and staggered nominal wage contracting. By placing the contracting process in a setting of imperfect competition it becomes possible to avoid the standard problem that intertemporal business cycle models generate plausible business cycle fluctuations only by assuming implausible large labor supply elasticities. It is shown that nominal shocks can have persistent real effects and that nominal propagation via staggered nominal wage contracts substantially strengthens the persistency in the adjustment process for real output caused by real mechanisms like capital accumulation.
JEL Classification: E32
Suggested Citation: Suggested Citation