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A theory of price adjustment under loss aversion

Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J. - 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/10010354159

Monetary persistence and the labor market : a new perspective

Lechthaler, Wolfgang; Merkl, Christian; Snower, Dennis J. - 2010

In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business...

Persistent link: https://www.econbiz.de/10003937114

Envy, guilt, and the Phillips curve

Ahrens, Steffen; Snower, Dennis J. - 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/10009488916

A theory of wage adjustment under loss aversion

Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J. - 2014

price. Firms adjust wages flexibly in response to variations in labor demand. The resulting theory of wage adjustment is … starkly at variance with past theories. In line with the empirical evidence, we find that (1) wages are completely rigid in … response to small labor demand shocks, (2) wages are downward rigid but upward flexible for medium sized labor demand shocks …

Persistent link: https://www.econbiz.de/10010465159

Hyperbolic discounting and positive optimal inflation

Graham, Liam; Snower, Dennis J. - 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/10009130272