Wage Setting Actors, Sticky Wages, and Optimal Monetary Policy

• Autores: Miguel Casares Polo
• Localización: Documentos de Trabajo ( Universidad Pública de Navarra. Departamento de Economía ), Nº. 1, 2007
• Idioma: inglés
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• Resumen

  • Following Erceg et al. (2000), sticky wages are generally modelled by assuming that households set wage contracts à la Calvo (1983). This paper compares that sticky-wage model to one variant based on wage contracts set by firms, assuming flexible prices in any case. The key variable for wage dynamics moves from the marginal rate of substitution (households set wages) to the marginal product of labor (firms set wages). Optimal monetary policy in both cases fully stabilizes wage inflation and the output gap after technology or preference innovations. However, the presence of a nominal shock makes the assumption on who set wages relevant for the optimal trade-off between the variabilities of wage in?ation and the output gap.