Wage stickiness and unemployment fluctuations: an alternative approach

• Miguel Casares ^[1] ; Antonio Moreno ^[2] ; Jesús Vázquez ^[3]
  1. [1] Universidad Pública de Navarra

     Universidad Pública de Navarra

     Pamplona, España

     
  2. [2] Universidad de Navarra

     Universidad de Navarra

     Pamplona, España

     
  3. [3] Universidad del País Vasco/Euskal Herriko Unibertsitatea

     Universidad del País Vasco/Euskal Herriko Unibertsitatea

     Leioa, España

     

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• Localización: SERIEs : Journal of the Spanish Economic Association, ISSN 1869-4195, Vol. 3, Nº. 3, 2012, págs. 395-422
• Idioma: inglés
• DOI: 10.1007/s13209-011-0079-y
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• Resumen

  • Erceg et al. (J Monet Econ 46:281–313, 2000) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using a Bayesian econometric approach, both models are estimated with US quarterly data of the Great Moderation. Estimation results are similar in the two models and both provide a good empirical fit, with the crucial difference that our model delivers unemployment fluctuations. Thus, second-moment statistics of the US rate of unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. Demand-side shocks play a more important role than technology innovations or cost-push shock in explaining both output and unemployment fluctuations. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.