Staggered Wages and Output Dynamics under Disinflation

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. The money wage is fixed for two periods, and is chosen according to intertemporal optimisation. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump.


Issue Date:
Mar 03 2000
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/269328
Language:
English
Total Pages:
38
JEL Codes:
E31; E52




 Record created 2018-03-07, last modified 2018-03-07

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