A number of authors have suggested that economies face a long-run inflation-unemployment trade-off due to downward nominal-wage rigidity. This theory has implications for the nature of the short-run Phillips curve when wage inflation is low. Akerlof, Dickens and Perry have developed an empirical model in which a variable (S) designed to capture the effect of downward nominal-wage rigidity is co...

A number of authors have suggested that economies face a long-run inflation-unemployment trade-off due to downward nominal-wage rigidity. This theory has implications for the nature of the short-run Phillips curve when wage inflation is low. Akerlof, Dickens and Perry have developed an empirical model in which a variable (S) designed to capture the effect of downward nominal-wage rigidity is co...

Abstract Previous research has shown that in the context of a prototypical New Keynesian model, more progressive income taxation may lead to higher volatility hours worked and total output response monetary disturbance. We analytically show this business‐cycle destabilization result is overturned within an otherwise identical macroeconomy subject impulses household's utility formulation. Under ...

Recent empirical evidence has shown that nominal wages are more rigid among blue-collar (low income) workers than among white-collar (high income) workers. We show theoretically that employees in crisis-ridden firms will reject wage cut proposals that save jobs if risk aversion is great, replacement rates high and marginal taxes low. These factors for can explain why wage rigidity is less inten...

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under ...

We construct a model that introduces nominal rigidity into R&D-driven endogenous growth with heterogeneous firms. The shows high leads to an increase in the market share of innovative firms as menu-cost burdens are relatively heavier for less This reallocation effect yields positive monetary expansion on both real and welfare. optimal can be strictly even under rigidity. Moreover, menu costs im...

Motivated by the recent experiences of the euro area and Japan, this paper presents a model that captures the joint occurrence of a liquidity trap and a jobless recovery. Its key elements are downward nominal wage rigidity, a Taylor-type interest-rate feedback rule, the zero bound on nominal rates, and a confidence shock. Absent a change in policy, the model predicts that low inflation and high...