cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions … persistent movements of aggregate inflation. Moreover, the impact of a monetary policy shock on unemployment and inflation …

We present a new theory of wage adjustment, based on worker loss aversion. In line with prospect theory, the workers … price. Firms adjust wages flexibly in response to variations in labor demand. The resulting theory of wage adjustment is …

market with wage rigidities may not recover from such a temporary labor supply shock: with a younger and less experienced … even after the shock. In a competitive market, in contrast, wage inequality and notably, the wage return to experience … becomes higher but there is no persistence of the supply shock. Higher education prevents this intertemporal multiplication of …

that the employment rate is slow to converge to its steady state value after a monetary shock. The after-effects of a shock … continue to exert an effect on the labor market even long after the shock is over. The sluggishness of the labor market … translates to the product market and thus the output effects of the monetary shock become more persistent. Under reasonable …

model will prevail. If hit by an adverse technology shock, the economy will then react with a stronger downward adjustment …