In this paper we present an extension of the Taylor model with staggered wages in which wage-setting is also influenced by reference norms (i.e. by benchmark wages). We show that reference norms can considerably increase the persistence of inflation and the extent of real wage rigidity but that...

Standard real business cycle models must rely on total factor productivity (TFP) shocks to explain the observed comovement of consumption, investment, and hours worked. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption can generate...

We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three...

Nominal wage stickiness is an important component of recent medium-scale macroeconomic models, but to date there has been little microeconomic evidence supporting the assumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using data from...

We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three...

Nominal wage stickiness is an important component of recent medium-scale structural macroeconomic models, but to date there has been little microeconomic evidence supporting the assumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using...

The paper estimates the NAIRU from a Phillips curve relationship in the state-space framework. To identify the inflation-unemployment trade-off we account for a time-varying inflation trend to control for the part of inflation that is not affected by the cyclical component of unemployment. In...

A particular challenge for the macroeconomic models is their inability to match the joint dynamics of employment, wage and output observed in the data. In this paper, we incorporate labor-leisure externalities into a standard model, as supported both by recent empirical studies in labor...

Short Time Compensation [STC] was a key program in Germany to fight the crisis. However, STC is quite an old tool: in the past 100 years it has been used quite often and is very multifunctional. It stabilized employment in every kind of macroeconomic shock. After a brief look into the...

This article analyses the relevance of the extensive and the intensive margin of labour adjustment over the business cycle in Germany and in the United States. Previous research has found that, firstly, the extensive margin dominates and that, secondly, the relative relevance of the two margins...