Wage Stickiness and Unemployment Fluctuationsan alternative approach

Resumen

Erceg, Henderson and Levin (2000, Journal of Monetary Economics) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage sticki- ness may bring unemployment fluctuations into a New-Keynesian model. Using Bayesian econo- metric techniques, both models are estimated with U.S. quarterly data of the Great Moderation. Estimation results are similar and provide a good empirical fit with the crucial difference that our proposal delivers unemployment fluctuations. Thus, second-moment statistics of U.S. un- employment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption.