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The Inflation-Output Trade-off with Downward Wage Rigidities / Pierpaolo Benigno, Luca Antonio Ricci.
- Format:
- Book
- Author/Creator:
- Benigno, Pierpaolo.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w15762.
- NBER working paper series no. w15762
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2010.
- Summary:
- In the presence of downward nominal wage rigidities, wage setters take into account the future
- consequences of their current wage choices, when facing both idiosyncratic and aggregate shocks. We derive a closed-form solution for a long-run Phillips curve which relates average output gap to average wage inflation: it is virtually vertical at high inflation and flattens at low inflation. Macroeconomic volatility shifts the curve outward and reduces output. The results imply that stabilization policies play an important role, and that optimal inflation may be positive and differ across countries with different macroeconomic volatility.
- Notes:
- Print version record
- February 2010.
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