Staggered wages and monetary policy : a dynamic general equilibrium approach
Ascari, Guido (1998) Staggered wages and monetary policy : a dynamic general equilibrium approach. PhD thesis, University of Warwick.
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Official URL: http://webcat.warwick.ac.uk/record=b1365211~S1
In the first chapter, first we review the famous Taylor (1979, 1980a) model
of staggered wage setting and then we present original work in describing the
structure of a dynamic general equilibrium model with staggered wage setting
a la Taylor. This model is central to the thesis since the results presented in
chapters 2, 3 and 4 are based on it. Moreover, also the models in chapters 5
and 6, while somewhat different, originate from it.
Chapter 2 addresses the issue of superneutrality of money using the model
presented in the previous chapter. It demonstrates that, once staggered
wages are introduced in an optimising framework, a mild permanent change
in the rate of growth of money could have substantial effects on the steady
state aggregate level of output and welfare. Previous studies fail to reproduce
these results because they consider restrictively simple utility and production
functions. The model exhibits high costs of inflation and provides a rationale
for the pursuit of price stability observed in western countries.
Chapter 3 studies analytically the output costs of a reduction in monetary
growth in the dynamic general equilibrium model with staggered wages of the
previous chapters. We show that the introduction of microfoundations helps
to resolve the puzzle recently raised by Laurence Ball (1994), namely that
disinflation in staggered pricing models causes a boom. In our model disinflation,
whether unanticipated or anticipated, unambiguously causes a slump.
The analytical results are restricted to the tractable case (log-linearisation of
the model around a zero steady state inflation), but a long appendix checks
the robustness of these results through non-linear simulations.
Chapter 4 investigates whether staggered wages could induce a high degree
of persistence in the real effects of money shocks. We show how the
parameters of Taylor's model depend upon the microeconomic fundamentals
and the conduct of monetary policy. We conclude that high persistence is an
unlikely outcome. Either sensible values of the microeconomic parameters
or a moderate rate of underlying inflation imply a low degree of persistence.
This is the persistence puzzle we referred to above. Furthermore, we show
that: (i) the model is highly non-linear; (ii) the conduct of monetary policy
affects the structural parameters of Taylor's wage setting equation, providing
a clear example of the Lucas critique; (iii) the inertia of the system is
inversely related to the level of average inflation.
In Chapter 5 we incorporate explicit relative wage concern on the part
of wage-setters into the dynamic general equilibrium model with staggered
wages developed in the previous chapters. We then investigate the effects of
money shocks on both inflation and output. In contrast to previous models of
staggered wages/prices, output and inflation persistence are a robust finding
of the model. Moreover, they hold for all the sensible parametrisations.
Given the empirical evidence on relative wage concern, we conclude that this
may be the missing piece in the money shocks persistence puzzle.
Chapter 6 presents a unifying framework to analyse the ability of price
versus wage staggering to generate persistence. The results are fairly general
in that they derive from a stylised log-linear model which encompasses
most of the microfounded models of price/wage staggering, found recently in
the literature. The results highlight the importance of the underlying economic
structure for the ability of staggered price/wage models to generate
persistence of the real effects of money shocks.
|Item Type:||Thesis or Dissertation (PhD)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Library of Congress Subject Headings (LCSH):||Wages -- Econometric models|
|Official Date:||August 1998|
|Institution:||University of Warwick|
|Theses Department:||Department of Economics|
|Sponsors:||European Commission (ERBFMBICT961073)|
|Extent:||[ix], 306 leaves|
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