Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...

Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...

We analyze monetary policy in a model where temporary shocks can permanently scar the economy's productive capacity. Unemployed workers' skill losses generate multiple steady-state unemployment rates. When monetary policy is constrained by the zero bound, large shocks reduce hiring to a point...

This paper studies the determinants of business cycles in small open economies and adds to the discussion about the changing nature of inflation dynamics. We estimate a series of VAR models for a set of six Asian emerging market economies, in which we identify a battery of domestic and global...

Wage indexation practices have changed. Evidence on the U.S. for instance suggests that wages were heavily indexed to past inflation during the Great Inflation but not during the Great Moderation. However, most DSGE models assume fixed indexation parameters in wage setting, which might not be...

Empirical and institutional evidence finds considerable time variation in the degree of wage indexation to past inflation, a finding that is at odds with the assumption of constant indexation parameters in most New-Keynesian DSGE models. We build a DSGE model with endogenous wage indexation in...