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Ahrens, Steffen; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2012

We incorporate inequity aversion into an otherwise standard New Keynesian dynamic equilibrium model with Calvo wage contracts and positive inflation. Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their...

Persistent link: https://www.econbiz.de/10009646332

A Theory of Price Adjustment under Loss Aversion

Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2014

We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility gains from price decreases of equal magnitude. Price...

Persistent link: https://www.econbiz.de/10011096764

Real Wage Rigidities and the Cost of Disinflations

Ascari, Guido; Merkl, Christian - Institute for the Study of Labor (IZA) - 2007

This paper analyzes the cost of disinflations under real wage rigidities in a micro-founded New Keynesian model. The consensus is that real wage rigidities can be a useful mechanism to induce the inflation persistence that is absent in the standard Calvo model. Real wage rigidities thus generate...

Persistent link: https://www.econbiz.de/10005762163

Hyperbolic Discounting and the Phillips Curve

Graham, Liam; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2008

Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run effects on real variables.

Persistent link: https://www.econbiz.de/10005763519

Hyperbolic Discounting and Positive Optimal Inflation

Graham, Liam; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2011

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

Persistent link: https://www.econbiz.de/10009021640

Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective

Karanassou, Marika; Sala, Hector; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2006

The conventional wisdom that inflation and unemployment are unrelated in the long-run implies that these phenomena can be analysed by separate branches of economics. The macro literature tries to explain inflation dynamics and estimates the NAIRU. The labour macro literature tries to explain...

Persistent link: https://www.econbiz.de/10005566415

Variance Estimation in a Random Coefficients Model

Schlicht, Ekkehart; Ludsteck, Johannes - Institute for the Study of Labor (IZA) - 2006

This papers describes an estimator for a standard state-space model with coefficients generated by a random walk that is statistically superior to the Kalman filter as applied to this particular class of models. Two closely related estimators for the variances are introduced: A maximum...

Persistent link: https://www.econbiz.de/10005566384

Inflation and Welfare in Long-Run Equilibrium with Firm Dynamics

Janiak, Alexandre; Monteiro, Paulo Santos - Institute for the Study of Labor (IZA) - 2009

establishments' productivities. Inflation distorts aggregate productivity through firm entry dynamics. The model is calibrated to the … decrease in the steady-state average productivity of roughly 0.5 percent compared to the optimum's steady-state. This decrease … in productivity is not innocuous: it leads to a doubling of the welfare cost of inflation. …

Persistent link: https://www.econbiz.de/10008574592

Does Immigration Affect the Phillips Curve? Some Evidence for Spain

Bentolila, Samuel; Dolado, Juan J.; Jimeno, Juan F - Institute for the Study of Labor (IZA) - 2007

The Phillips curve has flattened in Spain over 1995-2006: unemployment has fallen by 15 percentage points, with roughly constant inflation. This change has been more pronounced than elsewhere. We argue that this stems from the immigration boom in Spain over this period. We show that the New...

Persistent link: https://www.econbiz.de/10005233738

The Unemployment Inflation Trade-Off in the Euro Area

Linzert, Tobias - Institute for the Study of Labor (IZA) - 2005

This paper analyzes the relationship between unemployment and wage inflation for 10 of the euro area countries. The combination of low wage inflation and high unemployment in Europe is usually attributed to a rise in the natural rate of unemployment. Using a panel data approach, this paper...

Persistent link: https://www.econbiz.de/10005703542

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