Journal article

Real Wage Rigidities and the Cost of Disinflations

Publication Details
Author(s): Merkl C, Ascari G
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.

Focus Area of Individual Faculties

How to cite
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.

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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