Merkl C, Ascari G (2009)
Publication Language: English
Publication Type: Journal article
Publication year: 2009
Publisher: Wiley-Blackwell
Book Volume: 41
Pages Range: 417-435
Journal Issue: 2-3
DOI: 10.1111/j.1538-4616.2009.00211.x
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.
APA:
Merkl, C., & Ascari, G. (2009). Real Wage Rigidities and the Cost of Disinflations. Journal of Money, Credit and Banking, 41(2-3), 417-435. https://dx.doi.org/10.1111/j.1538-4616.2009.00211.x
MLA:
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.
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