Non-uniform wage-staggering: European evidence and monetary policy implications

In many countries, wage changes tend to be clustered in the beginning of the year, with wages being set for xed durations of typically one year. This has been, in particular, documented in recent years for European countries using microeconomic data. Motivated by this evidence we build a model of uneven wage staggering, embedded in a standard DSGE model of the euro area, and investigate the monetary policy consequences of non-synchronised wage setting. The model has the potential to generate responses to monetary policy shocks that differ according to the timing of the shock. Using a realistic calibration of the seasonality in wage-setting, based on a wide survey of European rms, the quantitative difference across quarters turns out however to be moderate. Relatedly, we obtain that the optimal monetary policy rule does not vary much across quarters. JEL classi cation: E27 E52 (1) Banque de France. Email: [email protected] (2) Banque de France. Email: [email protected] (3) Bank of England. Email: [email protected] The views expressed in this paper are those of the authors, and not necessarily those of the Bank of England or the Banque de France. The authors are extremely grateful to Julien Matheron for originally suggesting to us the procedure for simulating a model with decision rules varying quarter to quarter. We also thank Silvana Tenreyro for useful conversations and suggestions. This paper was nalised on ( nal date). The Bank of England's working paper series is externally refereed. Information on the Bank's working paper series can be found at www.bankofengland.co.uk/publications/workingpapers/index.htm. Publications Group, Bank of England, Threadneedle Street, London, EC2R 8AH; telephone +44 (0)20 7601 4030, fax +44 (0)20 7601 3298, email [email protected]. c Bank of England 2011 ISSN 1749-9135 (on-line)