Kiel Working Papers, Kiel Institute for World Economics
No 1312:
Real Wage Rigidities and the Cost of Disinflations
Guido Ascari and Christian Merkl
Abstract: This paper analyzes the cost of disinflation under real
wage rigidities in a micro-founded New Keynesian model. Unlike Blanchard
and Galí (2007) who carried out a similar analysis in a linearized
framework, we take non-linearities into account. We show that the results
change dramatically, both qualitatively and quantitatively, for the steady
states and for the dynamic adjustment paths. In particular, a disinflation
implies a prolonged slump without any need for real wage rigidities.
Keywords: Disinflation, Sticky Prices, Real Rigidities; (follow links to similar papers)
JEL-Codes: E31,; E52; (follow links to similar papers)
18 pages, February 2007
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