The frequency of nominal wage adjustments varies with macroeconomic conditions, but existing New Keynesian models exclude such state dependency in wage setting, assuming time-dependent setting. This paper develops a New Keynesian model in which fixed wage-setting costs generate state-dependent...

Idiosyncratic earnings risk shows cyclical variation. In order to analyze its implication with respect to labor market dynamics, this paper develops an incomplete asset markets model in which individuals make consumption-saving and employment choices each period in the presence of time-varying...