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 …

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 … an otherwise standard dynamic neoclassical model of monopolistic competition. The resulting theory of price adjustment is …

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 …

well. By implication, policies that stimulate investment and R&D and policies that affect the size of the labor force may …

labor resources generated in the aftermath of a shock). Furthermore, we estimate the contributions of individual lagged …