Gains from wage Flexibility and the Zero Lower Bound / Roberto M. Billi, Jordi Galí.

Format:

Book

Author/Creator:

Billi, Roberto M.

Contributor:

National Bureau of Economic Research.

Galí, Jordi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27386.

NBER working paper series no. w27386

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We analyze the welfare impact of greater wage flexibility in the presence of an occasionally binding zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.

Notes:

Print version record

June 2020.