Real wage rigidities and disinflation dynamics: Calvo vs. Rotemberg pricing

Calvo pricing implies output gains, while Rotemberg pricing implies output losses after a disinflation. Introducing real wage rigidities has opposite effects: it generates a long-lasting boom in output in Calvo, and a moderate output slump in Rotemberg.

Research Highlights► Calvo and Rotemberg pricing models entail a different dynamics after a disinflation. ► Calvo implies output gains while Rotemberg implies output losses. ► Real wage rigidities generate a boom in output in the Calvo model. ► Real wage rigidities cause a moderate output slump in the Rotemberg model.