Wage Stickiness and Unemployment FluctuationsAn Alternative Approach

  1. Casares Polo, Miguel
  2. Moreno, Antonio
  3. Vázquez, Jesús
Zeitschrift:
Working Papers ( Universidad de Navarra. Facultad de Ciencias Económicas y Empresariales )

Datum der Publikation: 2009

Nummer: 4

Art: Arbeitsdokument

Zusammenfassung

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 stickiness may bring unemployment fluctuations into a New-Keynesian model. Using Bayesian econometric 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. unemployment 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.