Staggered contracts and persistence : microeconomic foundations and macroeconomic dynamics

We develop in this article a new form of wage contracts similar in spirit to those developed by Calvo (1983), and integrate these contracts into a dynamic stochastic grneral equilibrium model. Rational wage setting by utility maximizing trade-unions is explicitly modelled. We derive the optimal wage contracts, and compute the dynamic macroeconomic response to monetary shocks. It is shown that, unlike in most traditional models, this response can display strong persistence, a hump shaped response and positive autocorrelations in output and employment variations. All these results are obtained in a model with explicit closed-form solutions.Persistence, Staggered wages, Wage contracts

The Phillips Curve and Optimal Policy in a Structural Signal Extraction Model

We study a monetary economy subject to "signal extraction" problems, and investigate within that framework the positive and normative aspects of monetary policy. As in Lucas (1972, 1973), imperfect signal perception generates macroeconomic correlations similar to those found in the "Phillips curve" literature. Moving to normative aspects, we find that, when aggregate shocks are present, traditional nonactivist policies do not allow to reach the first best, and that an intelligent activist policy always leads to better outcomes. The specific characteristics and effectiveness of this optimal policy also depend crucially on the problem of signal extraction. (Copyright: Elsevier)