This paper extends the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model to agents who cannot smooth consumption (i.e. spenders) and are affected by external consumption habits. Although these assumptions are not new, their joint consideration strongly affects some...

The introduction of labor market frictions into the New Keynesian DSGE model solves some of the main drawbacks of the baseline framework. In this paper we show that this extended model, by assuming real wage rigidities, fails to replicate the correct wage dynamics and the observed negative...

The inclusion of labor market frictions in the new Keynesian DSGE model overcomes the main drawbacks of the baseline framework. In this paper we show that this extended model, by assuming real wage rigidities, does not replicate the correct wage dynamics and the negative conditional correlation...