Real Wage Rigidities and the Cost of Disinflations

Journal article

Publication Details

Author(s): Merkl C, Ascari G
Journal: Journal of Money Credit and Banking
Publisher: Wiley-Blackwell
Publication year: 2009
Volume: 41
Journal issue: 2-3
Pages range: 417-435
ISSN: 0022-2879
Language: English


This paper analyzes the cost of disinflations under real wage rigidities in a micro-founded New Keynesian model. The conventional view is that real wage rigidities can be a useful mechanism to generate a slump in output after a credible disinflationary policy because they prevent the immediate adjustment of inflation. This view is flawed, since it depends on analyzing the model in a linearized framework. Once nonlinearities are taken into account, the results change both qualitatively and quantitatively. Disinflations actually lead to a permanently higher level of output, and real wage rigidities increase the output during the adjustment to the new steady state.

FAU Authors / FAU Editors

Merkl, Christian Prof. Dr.
Lehrstuhl für Volkswirtschaftslehre, insbesondere Makroökonomik

How to cite

Merkl, C., & Ascari, G. (2009). Real Wage Rigidities and the Cost of Disinflations. Journal of Money Credit and Banking, 41(2-3), 417-435.

Merkl, Christian, and Guido Ascari. "Real Wage Rigidities and the Cost of Disinflations." Journal of Money Credit and Banking 41.2-3 (2009): 417-435.


Last updated on 2018-10-06 at 20:10