I introduce sticky wages in the model with credit constrained or “rule of thumb” consumers advanced by Galì, Valles and Lopez Salido (2005). I show that wage stickiness i) restores, in contrast with the results in Bilbiie (2005), the Taylor Principle as a necessary condition for equilibrium determinacy; ii) implies that a a rise in consumption in response to an unexpected rise in government spending is not a robust feature of the model. In particular, consumption increses just when the elasticity of marginal disutility of labor supply is low. Results are robust to most of Taylor-type monetary rules used in the literature, including one which responds to wage inflation.

Colciago, A. (2006). Sticky wages and rule of thumb consumers [Working paper del dipartimento].

Sticky wages and rule of thumb consumers

COLCIAGO, ANDREA
2006

Abstract

I introduce sticky wages in the model with credit constrained or “rule of thumb” consumers advanced by Galì, Valles and Lopez Salido (2005). I show that wage stickiness i) restores, in contrast with the results in Bilbiie (2005), the Taylor Principle as a necessary condition for equilibrium determinacy; ii) implies that a a rise in consumption in response to an unexpected rise in government spending is not a robust feature of the model. In particular, consumption increses just when the elasticity of marginal disutility of labor supply is low. Results are robust to most of Taylor-type monetary rules used in the literature, including one which responds to wage inflation.
Working paper del dipartimento
Scientifica
Sticky Prices; Sticky Wages; Rule of Thumb Consumers
English
Colciago, A. (2006). Sticky wages and rule of thumb consumers [Working paper del dipartimento].
Colciago, A
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/23058
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