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Staggered wages and output dynamics under disinflation

By Guido Ascari and Neil Rankin

Abstract

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. The money wage is fixed for two periods, and is chosen according to intertemporal optimisation. Agents have labour market monopoly power. We show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models, namely that disinflation in staggered pricing models causes a boom. In our model disinflation, whether unanticipated or anticipated, unambiguously causes a slump

Topics: HD
Publisher: University of Warwick, Department of Economics
Year: 2000
OAI identifier: oai:wrap.warwick.ac.uk:1620

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