Sticky wages and rule of thumb consumers

No 98, Working Papers from University of Milano-Bicocca, Department of Economics

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.

Keywords: Sticky Prices; Sticky Wages; Rule of Thumb Consumers (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-09, Revised 2006-09
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:98

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