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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
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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
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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