Wage stickiness and unemployment fluctuationsan alternative approach

  1. Miguel Casares 1
  2. Antonio Moreno 2
  3. Jesús Vázquez 3
  1. 1 Universidad Pública de Navarra
    info

    Universidad Pública de Navarra

    Pamplona, España

    ROR https://ror.org/02z0cah89

  2. 2 Universidad de Navarra
    info

    Universidad de Navarra

    Pamplona, España

    ROR https://ror.org/02rxc7m23

  3. 3 Universidad del País Vasco/Euskal Herriko Unibertsitatea
    info

    Universidad del País Vasco/Euskal Herriko Unibertsitatea

    Lejona, España

    ROR https://ror.org/000xsnr85

Journal:
SERIEs : Journal of the Spanish Economic Association

ISSN: 1869-4195

Year of publication: 2012

Volume: 3

Issue: 3

Pages: 395-422

Type: Article

DOI: 10.1007/S13209-011-0079-Y DIALNET GOOGLE SCHOLAR lock_openOpen access editor

More publications in: SERIEs : Journal of the Spanish Economic Association

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Abstract

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.