2000
DOI: 10.2139/ssrn.231785
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Optimal Monetary Policy With Staggered Wage and Price Contracts

Abstract: We formulate an optimizing-agent model in which both labor and product markets exhibit monopolistic competition and staggered nominal contracts. The unconditional expectation of average household utility can be expressed in terms of the unconditional variances of the output gap, price inflation, and wage inflation. Monetary policy cannot replicate the Pareto-optimal equilibrium that would occur under completely flexible wages and prices; that is, the model exhibits a tradeoff between stabilizing the output gap… Show more

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Cited by 124 publications
(202 citation statements)
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“…Separable utility and complete domestic financial markets, see Erceg et al (2000), imply the existence of a symmetric equilibrium with C j,t = C t , u j,t = u t ,…”
Section: Householdsmentioning
confidence: 99%
“…Separable utility and complete domestic financial markets, see Erceg et al (2000), imply the existence of a symmetric equilibrium with C j,t = C t , u j,t = u t ,…”
Section: Householdsmentioning
confidence: 99%
“…The analysis of a number of studies including those by Erceg et al (2000); Ascari (2000) and Huang and Liu (2002) suggests that adding sticky wages may improve the endogenous-persistence performance of the NK model. The next section takes a look a model that has wage stickiness in addition to price stickiness.…”
Section: Achievements and Challengesmentioning
confidence: 99%
“…Then each household is modelled as supplying a differentiated labour service to firms [see, for example, Erceg et al (2000) or Canzoneri et al (2007)]. The existence of complete markets ensures that the households are homogeneous in terms of their consumption decisions but heterogeneous in terms of their labour supply decisions.…”
Section: Adding Wage Stickinessmentioning
confidence: 99%
“…We shall now study the optimal rule when prices are staggered 10 . The underlying idea (Calvo, 1983) is that in each period every price contract has a probability φ of being maintained, and a probability 1 − φ of being cancelled, in which case it is renegotiated on the basis of the latest information.…”
Section: The Interest Rate Rule Under Staggered Pricesmentioning
confidence: 99%
“…The validity of that claim in non-Ricardian frameworks has been analyzed in Bénassy (2002b). 3 There are already in the literature numerous contributions deriving optimal rules from explicit maximization, for example Woodford (1997, 1999), Svensson (1997Svensson ( , 1999, Clarida, Gali and Gertler (1999), King and Wolman (1999), Erceg, Henderson and Levin (2000), Henderson and Kim (2001), Woodford (2003). Due to the complexity of calculations many contributions use numerical simulations or quadratic approximations.…”
Section: Introductionmentioning
confidence: 99%