During the last 20 years, the importance of a number of behavioral features has been widely accepted within economics, and they are now regularly included in standard macro models. Where has this development led us? I argue that the insights from behavioral economics have led to important...

Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy—for example, the counterfactual absence of inertia in the standard...

We study the possible existence of downward nominal wage rigidity (DNWR) at wage growth rates different from zero in aggregate data. Even if DNWR prevails at zero for individual workers, compositional effects might lead to falling aggregate wages, while changes in relative wages combined with...

Over the period 1979-92, investments in Danish and Norwegian kroner in the Euromarket have had an annual excess return of about 2 and 1.1 percent, compared to investments in the Euromarket in foreign currencies. Assuming risk neutrality, the subjective probability of a devaluation within the...

Inflation can “grease” the wheels of economic adjustment in the labor market by relieving the constraint imposed by downward nominal wage rigidity, but not if there is also substantial downward real wage rigidity. At the same time, inflation can throw “sand” in the wheels of economic...

This paper analyzes the relationship between the budget balance and the cyclical situation of the economy. There are two main purposes. In the first analysis, we develop a method for economic policy, and induced changes that arise due to changes in the economy. The discretionary component of the...

A number of recent studies have documented extensive downward nominal wage rigidity (dnwr) for job stayers in many oecd countries. However, DNWR for individual workers may induce downward rigidity or “a floor” for the aggregate wage growth at positive or negative levels. Aggregate wage...

How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in 31 different data sets from sixteen countries, from which...

Recent micro studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries, but the effect on aggregate variables remains disputed. Using data for hourly nominal wages, we explore the existence of DNWR on wages at the industry level in 19 OECD...