Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099709 | Journal of Economic Dynamics and Control | 2010 | 20 Pages |
Abstract
The inclusion of labor market frictions in the new Keynesian DSGE model overcomes the main drawbacks of the baseline framework. In this paper we show that this extended model, by assuming real wage rigidities, does not replicate the correct wage dynamics and the negative conditional correlation between technology shocks and employment observed in the data, known as the “productivity-employment puzzle” . We show also that these empirical limitations can be overcome by replacing real wage rigidities with nominal wage rigidities, without sacrificing other appealing features of the model. We adopt a Bayesian perspective to estimate the dynamic properties of the model with real wage rigidities and compare them with those of the model with nominal wage rigidities. We show that the evidence favors this latter construction.
Keywords
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Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Marianna Riggi, Massimiliano Tancioni,