Recent studies by Gali and Gertler (1999) and Sbordone (2002) conclude that a theoretical inflation series implied by the forward-looking New Keynesian pricing model of Calvo (1983) fits post-1960 U.S. inflation closely. Their theoretical inflation series is conditional on (i) a reduced-form...

We build a New Keynesian model of the business cycle with sticky prices and real wage rigidities motivated by efficiency wages of the gift exchange variety. Compared to a standard sticky price model, our Fair Wage model provides an explanation for structural unemployment and generates more...

This paper proposes a novel Maximum Likelihood (ML) strategy to estimate Euler equations implied by dynamic stochastic theories. The strategy exploits rational expectations cross-equation restrictions, but circumvents the problem of multiple solutions that arises in Sargent's (1979) original...

We develop and analyze a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model...

Average hourly real wage series from the Labor Productivity and Costs (LPC) program and the Current Employment Statistics (CES) program have evolved very differently over the past decades. While the LPC wage has grown consistently over time and become markedly more volatile since the mid-1980s,...

According to data from the Labor Productivity and Costs (LPC) program, average hourly real compensation in the United States has grown consistently over time and become markedly more volatile since the mid-1980s. By contrast, data from the Current Employment Statistics (CES) imply that average...