Munich Personal RePEc Archive

Real wages and monetary policy: A

DSGE approach

Perry, Bryan and Phillips, Kerk L. and Spencer, David E.

Brigham Young University

29 February 2012

Online at https://mpra.ub.uni-muenchen.de/36995/

MPRA Paper No. 36995, posted 28 Feb 2012 19:21 UTC

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RealWagesandMonetaryPolicy:ADSGEApproachBryanPerryBrighamYoungUniversitybperry12@gmail.com KerkLPhillipsBrighamYoungUniversitykerk_phillips@byu.edu DavidE.SpencerBrighamYoungUniversitydavid_spencer@byu.edu February2012JELCodes:E32,E52,E10Keywords:realwages,monetarypolicy,DSGEmodels

AbstractEconomistshavelonginvestigatedthecyclicalbehaviorofrealwagesinordertodrawinferencesregardingtherelativestickinessofpricesandwages.Recentstudieshaveadoptedtechniquesintendedtoidentifymonetaryshocksandexaminedtheresponseofrealwagesandoutputoremploymenttosuchshocks.Afindingthatrealwagesareprocyclicalinresponsetoapositivemonetarypolicyshock,forexample,istakenasevidencethatpricesarestickierthanwages.Inthispaper,weshowthatfactorsotherthanwageandpricestickinessaffecttheresponseofrealwagestoamonetarypolicyshock.Accordingly,examiningtheresponseofrealwagesisnotenoughtosortouttherelativestickinessofpricesandwages.WeusetwoprominentDSGEmodelstohelpusaddressthisissue.Thesemodelsincorporatebothstickywagesandpricesbutindifferentways.Thefirstmodel(Huang,Liu,andPhaneuf,AmericanEconomicReview,2004)isrelativelysimpleandisnotintendedforpolicyanalysis.Itsrelativesimplicityallowsustoapproachtheissuesbothanalyticallyandthroughsimulations.Thesecondmodel(SmetsandWouters,AmericanEconomicReview,2007)isarelativelycomplexmodeloftheU.S.economywithmanyfrictionsandintendedtobeusefulforpolicyanalysis.Becauseofitscomplexity,wemustrelyprincipallyonsimulationexercises.Usingthesemodelsweofferrobustevidencethattherealwageresponsetomonetarypolicyisaffectedinimportantwaysbypropertiesoftheeconomyotherthanstickinessofwagesandprices,suchastheimportanceofintermediategoodsintheproductionprocessandthesizeofkeyelasticities.Consequently,wecannotappropriatelyinfertherelativestickinessofwagesandpricesfromexaminingonlytheresponseofrealwagestoamonetarypolicyshock.

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RealWagesandMonetaryPolicy:ADSGEApproach SincethepublicationofKeynes’sGeneralTheory,economistshavebeeninterestedinthecyclicalbehaviorofrealwages.Aprincipalmotivationforthisinteresthasbeentoprovideevidencethatallowsustodiscriminateamongalternativeexplanationsofcyclicalfluctuations,especiallythosethatrelyoneitherstickypricesorstickywages.TheearlyKeynesiansticky‐wageexplanationofthebusinesscyclefluctuationspredictedcountercyclicalrealwages.Inthatmodel,nominalwagesarefixedandemploymentisdeterminedbyastable,negatively‐slopedlabordemandcurve.Consequently,anaggregatedemand(nominal)shockwillcauserealwagesandemployment(output)tomoveinoppositedirections.JohnDunlop’s(1938)earlyevidenceofprocyclicalrealwageswaswidelyseenasanimportantchallengetothisview.Formanyyearsthecyclicalbehaviorofrealwageswasexaminedinnumerousstudiesby,inonewayoranother,exploringthecorrelationbetweenrealwagesandeitheroutputoremployment.Conclusionsvariedwidelydependingonthevariableschosen,thesampleperiod,orotherfactors.Inasurveypaper,StanleyFischer(1988)concludedthat“theweightoftheevidencebynowisthattherealwageisslightlyprocyclical.”Thiswastakenbymanytosupporttheconclusionthatpriceshavebeenstickierthanwages.1Itwaseventuallypointedoutthatthecorrelationbetweenrealwagesandoutput(employment)cannotbeinterpretedassimplyreflectingtheshort‐runrealeffectsofnominalshocksiftheeconomyis,infact,affectedbyothershocksaswellsinceempiricalcorrelationsreflecttheeffectsofallshocks.Theissuehasthereforebecome,howdorealwagesrespondtonominal(aggregatedemand)shockssettingallothershockstozero?Thisquestioncannotbeansweredbylookingatsimplecorrelationsbetweentherealwagerateandoutputoremployment. 1Forexample,suchconclusionsweredrawnbyBennettMcCallum(1986),N.GregoryMankiw(1987),andLaurenceBall,Mankiw,andDavidRomer(1988).

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Accordingly,morerecentstudies2haveattemptedtoempiricallyidentifymonetaryshocksandtheninvestigatetheresponseofrealwagesandoutputoremploymenttosuchshocks.Afindingthatrealwagesareprocyclicalinresponsetoapositive(expansionary)monetarypolicyshock,forexample,istakenasevidencethatpricesarestickierthanwages.Forsuchinferencestobejustified,thecyclicalresponseofrealwagesmustprincipallyreflecttherelativestickinessofwagesandprices,nototherfactors.Thepurposeofthispaperistoarguethattherearemanycharacteristicsoftheeconomybeyondwageandpricestickinessthataffectthecyclicalresponseofrealwagestomonetarypolicyshocks.Consequently,evenevidenceregardingthecyclicalbehaviorofrealwagesinresponsetoamonetaryshockwillnotallowustodrawunambiguousconclusions.Ourspecificobjectiveistoinvestigatethebroadarrayoffactorsthataffectthecyclicalityofrealwagesincludingnotonlytherelativestickinessofwagesandpricesbutotherfactorsaswell.Indeed,weseethattherelativestickinessofwagesandpricesrepresentsonlyapartofthepicture.Toaddressthisissue,wetakeanapproachthatisdifferentfromearlierstudies.Ratherthantakingtheestimatesfromempiricalmodelstoinfersomethingaboutrelativestickiness,weconsiderdynamicstochasticgeneralequilibrium(DSGE)modelsinwhichweparameterizetherelativestickinessofpricesandwagesandthenobservetheresponseofrealwagestoamonetarypolicyshock.Usingthisapproachwecanmorecarefullyexploreotherfactorsbeyondwageandpricestickinessthataffectthecyclicalresponseofrealwagestomonetaryshocks.WeusetwoprominentDSGEmodelstohelpusaddressthisquestion.Thesemodelsincorporatebothstickywagesandpricesbutindifferentways.Thefirstmodelisrelativelysimpleandisnotintendedforpolicyanalysis.KevinHuang,ZhengLiu,andLouisPhaneuf(2004),HLP,developamodeltoinvestigatetheimpactofthechangingimportanceoftheintermediategoodssectoronthecyclicalityofrealwages.Accordingly,theirmodelischaracterizedbyaproduction 2See,forexample,SumnerandSilver(1989),GamberandJoutz(1993),Spencer(1998),andFleischman(1999).

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functionthatrequiresintermediategoodsasinputsaswellascapitalandlabor.Householdsprovidedifferentiatedlaborskillstofirmswhichproducedifferentiatedgoods.WageandpricestickinessismodeledusingthestaggeredpriceandstaggeredwagecontractsmodelofJohnTaylor(1980,1999)andFischer(1977).Giventhenarrowfocusoftheirpaper,HLPincludeamonetarypolicyshockastheonlyshockinthemodel.Calibratingthemodel,theyshowthat,giventherelativestickinessofpricesandwages,therealwageswitchesfrombeingcountercyclicaltoprocyclicalastheshareofintermediategoodsintheproductionprocessincreases.Thesecondmodel,duetoFrankSmetsandRafaelWouters(2007),SW,isarelativelycomplexmodeloftheU.S.economywithmanyfrictionsandisintendedforpolicyanalysis.Itincludessevenshocks,oneofwhichisamonetarypolicy(interestrate)shock.Italsoincorporatesdifferentiatedlaborandgoods,habitpersistenceinconsumption,investmentadjustmentcosts,andstickypricesandwageswithpartialbackwardindexationtopastinflation.PriceandwagestickinessismodeledusingtheCalvo(1983)setup.TheSWmodel’sprimaryparametersareestimatedusingaBayesianlikelihoodapproach.ThenexttwosectionsofthepaperusetheHLPandSWmodels,respectively,toinvestigatehowkeyfactorsinthosemodelsaffectthecyclicalityoftheresponseofrealwagestomonetarypolicyshocks.Ineachcase,weexaminehowtheresponseisaffectedaswevarythesekeyfactorsoveranarrayofvaluesforwageandpricestickiness.Thethirdsectionattemptsapreliminarysynthesisofwhatwehavelearnedfromtheseexercisesandthefinalsectionprovidesaconclusion.I. TheHuang,Liu,andPhaneufModelThecentralissueoftheHuang,Liu,andPhaneuf(2004),HLP,paperistoinvestigatehowtheresponseofrealwagestoamonetarypolicyshockisaffectedbychangesintheinput‐outputstructureoftheeconomyinthefaceofwageandpricestickiness.Theirfocusonrealwagesandmonetarypolicymakestheirmodelparticularlywellsuitedtoourpurposes.Theyconstructa

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dynamicstochasticgeneralequilibrium,DSGE,modelthatisrelativelysimpleand,thus,allowsustoapproachtheissuesanalyticallyaswellasthroughsimulations.Theirmodelhasdifferentiatedintermediategoodsanddifferentiatedlabor.Eachintermediategoodsproducersuppliesauniquegoodandenjoyssomedegreeofmonopolypower.Thesameistrueofhouseholdswhichsupplyuniqueformsoflabor.Finalgoodsproducerscombineintermediategoodsintoafinalgoodwhichcanbeusedforconsumption,investment,orasaninputintheproductionofintermediategoods.Similarly,thevariousuniqueformsoflaborareaggregatedintoalaborcompositewhichisalsousedintheproductionofintermediategoods.Anyparticularintermediategoodisproducedusingthreeinputs:capital,laborandanaggregationofallintermediategoods.Theimportanceoffinalgoodsissummarizedbythekeyparameterφ,whichistheCobb‐Douglasshareofintermediategoods(asopposedtocapitalandlabor)inthegoodsproductionfunction.SuppliersofintermediategoodsandlaborsetpricesusingastaggeredTaylor‐stylepricesettingarrangement.Thatis,contractsaresetforNperiodsandone‐Nthofthefirms(orhouseholds)areallowedtosetpriceseachperiod.Intermediategoodsproducersandlaborsupplierssolvetwotypesofproblems.First,giventheirfixedpriceorwagesetpreviously,theychoosetheoptimalamounttosupplyeachperiod.Second,everyNperiodstheychoosewhatthefixedpriceorwagewillbeforthenextNperiods.Householdsareallowedtoinsuretheirconsumptioneachperiodviaasetofcompletefinancialmarkets.Hence,everyhouseholdconsumesthesameamount,butitwillsupplydifferingamountsoflaborbasedontheirpreviouslychosenfixedwage.Thereisamonetaryauthoritythatcreatesnewmoneyeachperiodandtransfersitlump‐sumtothehouseholds.ThegrowthrateofthemoneysupplyisassumedtofollowanAR(1)process.HLPfocusontheparameter ,theimportanceofintermediategoodsintheproductionfunction(withavalueofzeroreflectingazeroshareofintermediategoodsin

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production).Theylookatthisinthecontextofthreespecificmodels:thefirstwithstaggeredprice‐settingandflexiblewages,thesecondwithstaggeredwage‐settingandflexibleprices,andthethirdwithbothstaggeredprice‐andwage‐setting.Theyshowthat,givenacalibratedparameterizationofthemodel,whenpricesarestickyandwagesflexible,realwagesrespondprocyclicallytoamonetarypolicyshockregardlessofthevalueofφ.Inthereversesituationwithstickywagesandflexibleprices,theirmodelimpliesthatrealwagesrespondcountercyclicallytoamonetarypolicyshockregardlessofthevalueofφ.3Inthemodelwithbothpriceandwagestickiness,however,theresponseofrealwagestoamonetarypolicyshockdependscriticallyonφ.Whenφissmallsointermediategoodsarenotsoimportantintheproductionprocess,realwagestendtobecountercyclicalinresponsetomonetarypolicyshocksand,whenφislarge,realwagesareprocyclical.Since,byassumption,wagesandpricesareequallystickyinthethirdmodel,weseethatthecyclicalbehaviorofrealwagesdoesnothaveunambiguousimplicationsfortherelativestickinessofwagesandprices.Thus,HLPshowthatotherfactors,inparticulartheimportanceofintermediategoodsinproduction,willalsoaffectthecyclicalityofrealwages.Thisisanimportantfinding.WeusetheHLPmodeltoconsiderhowthecyclicalityoftheresponseofrealwagestoamonetaryshockisaffectedbyotherpropertiesofthemodel.Forexample,howisthecyclicalityoftherealwageaffectedbychangingtherelativestickinessofpricesandwagesforvariousvaluesofφ?Severalotherparametersplaypotentiallyimportantrolesinthemodel: ,theelasticityofsubstitutionbetweendifferentiatedlaborskills, ,theelasticityofsubstitutionbetweendifferentiatedgoods, ,theelasticityofvalueaddedwithrespecttocapital,,theinverseoftheelasticityofintertemporalsubstitutionoflaborhours,and ,thecapitaladjustmentcostparameter.Accordingly,wealsoexaminehowthecyclicalresponseofrealwageschangesastheseparametersarevaried. 3Theseresultsarereminiscentoftheunderlyingmotivationbehindtheempiricaldebateregardingtherelativestickinessofpricesandwagesdiscussedintheopeningsectionofthispaper.

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A. VaryingPriceandWageStickinessAsindicatedabove,theHLPmodelincorporatespriceand/orwagestickinessusingthestaggeredprice‐andwage‐settingmodelsofTaylor(1980,1999)andFischer(1977).Inthissetup,eachfirm(worker)facesaprice(wage)contractoflengthNp(Nw).Duringeachperiod,fraction1/Np(1/Nw)ofthefirms(workers)chooseanewprice(wage)optimallythatwilllastforNp(Nw)periods.Sincetheyfocusontheroleofchangesinφ,intheirreportedresults,HLPchoosetosetNp=Nw=4.Whathappenstothecyclicalbehaviorofrealwageswhen,forvariousvaluesofφ,weconsideranarrayofothervaluesforNpandNw?Selectedimpulseresponsefunction(IRF)resultsarereportedinTable1.RetainingtheHLPpostwarcalibratedparametervaluesforσ,θ,andα,4wevarytheintegervaluesofNpandNwbetween1and8foreachofHLP’sinterwarandpostwarcalibratedvaluesofφ,0.4and0.7.TheresultsreportedinTable1arethefirstperiod(onequarter)responsesoftherealwageratetoaonepercentpositiveshocktothemoneygrowthratewitheachmatrixcorrespondingtoadifferentvalueofφ.5Forexample,when andNp=Nw=4,aonepercentincreaseinthemoneygrowthratecausesa0.30percentincreaseintherealwagerateafteronequarter.6[InsertTable1abouthere.] Theboldlineineachmatrixindicatesthedividinglinebetweencountercyclicalandprocyclicalrealwages.Therearethreethingstonotice.First,ifpricesaresticky(Np>1)butwages 4TheHLPparametervaluesareσ=3,θ=11,andα=0.4.5ToobtaintheresultsreportedinTable1,wesimulatethemodelforeachofthe630specifiedparametricconfigurations.Ineachcase,wecomputetheimpulseresponsefunction(IRF)fortherealwagewithrespecttoaonepercentmoneygrowthshockandreportthefirst(onequarterhorizon)value.SinceitwouldbeimpracticaltoreportthefullIRFforeachcase,wetakethemagnitudeandespeciallythesignofthisfirstIRFcoefficienttobeanindicatorofthecyclicalresponseoftherealwagetoamonetarypolicyshock.Sinceapositiveshocktomoneygrowthwillresultinanincreaseinemployment,anegativeeffectontherealwageindicatesacountercyclicalresponseofrealwages.6ThismatchestheresultobtainedbyHLPandreportedintheirFigure3.B.:seetheirIRFforφ=0.7atthefirstquarterhorizon.

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areflexible(Nw=1),realwagesarestronglyprocyclicalandchangingthevalueofφmakeslittledifference.Similarly,ifwagesaresticky(Nw>1)butpricesareflexible(Np=1),realwagesarestronglycountercyclicalandchangingthevalueofφmakesnodifferencewhatsoever.This,ofcourse,simplyconfirmsandextendstheoriginalHLPresults.7Second,foranygivenvaluesofφandNp,realwagesaremorecountercyclicalforlargervaluesofNw.Theseresultsareintuitivegiventhat,otherthingsequal,stickiernominalwagesimplymoreprocyclicalrealwages.Third,asφincreases,therangeofvaluesofNpandNwforwhichrealwagesarecountercyclicaldecreases.ThisgeneralizestheprincipalresultreportedbyHLPforNp=Nw=4:8ForanycombinationofNpandNw,realwagesbecomemoreprocyclicalastheimportanceofintermediategoodsinproductionincreases.HLPexplainthatthishappensbecauseanincreaseinφincreasesthesluggishnessofmovementsinmarginalcost.This,inturn,increasesthesluggishnessofnominalpricesandallowstheprocyclicalityofnominalwagestodominatetherealwage.B. VaryingOtherParametersWealsoinvestigatewhathappenstothecyclicalityofrealwagesaswevarytheelasticityparameters,σ,θ,α,andξaswellasthecapitaladjustmentcostparameterψ.Table2reportstheresultsforvariationsofσ,theelasticityofsubstitutionbetweendifferentiatedlaborskills.Theseparategridsassumethevaluesofσtobe1.5,3.0,11.0.Sincethewagemarkupis ,thesevaluesimplywagemarkupcoefficientsof3.0,1.5,and1.1respectively.Byreviewingthegridsinsequence,wecanseewhathappensasσincreases.First,ifwagesaresticky(Nw>1),as increases,realwagesbecomemorecountercyclicalforanygivenpairofpriceandwagestickinessparameters.Second,ifwagesareflexible(Nw=1),changesin havenoinfluenceonthecyclicalityoftherealwagewhatsoever.

7SeetherealwageIRFsreportedintheirFigures1and2.8 Ofcourse,ourresultsconfirmtheirsforthespecificcaseexaminedbyHLP.ForNp=Nw=4,when,therealwageisslightlycountercyclical.ForNp=Nw=4,when ,therealwagebecomesprocyclical.SeethecorrespondingIRFsattheone‐quarterhorizonintheirFigure3.B.

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Thefirstphenomenonoccursbecauseindividuals,whenabletore‐contracttheirwage,faceatradeoffbetweenahighernominalwageandanincreaseinhoursemployed.Thistradeoffishighlightedbyvaryingtheelasticityofsubstitutionbetweendifferentiatedlabor.Iftheelasticityishigh(markupislow),thelaboraggregatorwillpreferanindividualwithawagelowerthanthefixedwagesofothers.Alternatively,iftheelasticityislow(markupishigh),labordemandwillbeslowtodecreaseeveniftheindividualincreasesherwage.Therefore,nominalwagesarelessprocyclical(andevencountercyclical)when ishighandmoreprocyclicalwhen islow.Sincepricesaregenerallyprocyclical,asσrises,therealwagebecomesincreasinglycountercyclical.Thesecondphenomenon,thatchangingtheelasticityhasnoeffectwhenwagesareflexible,isexplainedbynotingthatifeverywageisre‐contractedeachperiod,thereisnoabilitytoundercutotherlaborers.Thus,theincentivetoincreasethenominalwageisunchallenged.Thisincentiveisnotaffectedbytheelasticityofsubstitutionwithoutthecounteringincentive,sochanging hasnoinfluenceonthecyclicalityoftherealwage.[InsertTable2abouthere.] TheHLPmodelimpliesthatvaryingθ,theelasticityofsubstitutionbetweendifferentiatedgoods,makesnodifferenceintheresponseofrealwagestoamonetaryshock.Ingeneral,becauseofstaggeredwagesetting,therealwageisaweightedaverageofmarkupsoverpast,present,andexpectedfuturevaluesofthemarginalrateofsubstitutionbetweenconsumptionandleisure,MRS.SincetheMRSisnotafunctionofθ,varyingthevalueofθwillhavenoeffectonthecyclicalityoftherealwage.WehaveconfirmedthisbycomputingthefirstIRFcoefficientsforvariousvaluesofθandobtainresultsidenticaltothosereportedinTable1.9 9 Weincludetherelevanttablesforθ=1.5,3.0,and11.0inanAppendixavailablefromtheauthors.

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Wehaveconductedsimilarexerciseswiththefollowingvaluesofα,theelasticityofvalueaddedwithrespecttocapital:0.2,0.4,and0.6.WehaveheldσandθconstantattheirHLPcalibratedvalues.Asαincreases,theabsolutevalueofthefirstIRFcoefficientrises,butthelocusofacyclicalityovertherangeofpriceandwagecontractlength(theboldline)doesnotchange.Tosavespace,wedonotreporttheresultshere.10Theintuitionhereiseasiertofollowifweagainthinkofthelimitingcasewhereallpricesandwagesareflexible.InthiscasetheshareoflaborinGDPis .HencethepercentchangeintherealwageisthepercentchangeinGDPminusthepercentchangeinthelaborinput.TheaggregateproductionfunctionfortheHLPmodelwithperfectflexibilityisamodifiedCobb‐Douglas.Combiningthesegivesthefollowingbreakdownofthepercentagechangeintherealwage. whereacarat( )indicatespercentchange.Thatis,thepercentchangeintherealwageisαtimesthepercentchangeinthecapital‐laborratio.Thelattercouldbeeitherpositiveornegative,butislargelyunaffectedbyα.Henceasαrisestheresponsivenessoftherealwagewillbecomelargerinabsolutevalue,butwillnotchangesign. Theparameter measurestheelasticityofintertemporallaborsubstitution.Weexaminefourvaluesbetween1.0and10.0.TheresultsreportedinTable3indicatethatchanging makesverylittledifferencewhenwagesareverystickyrelativetoprices(thelowerleftcornerareaofeachgrid),butthattherealwagebecomesmuchmoreprocyclicalwhenwagesareclosetoflexibleandpricesareverysticky(correspondingtotheupperrightcornerareaofeachgrid)as increases.Asapersonbecomesmorewillingtosubstitutelabortomorrowforleisuretoday,theybecomemorelikelytoincreasetheirwageiftheincentivetoundercutotherlaborislow(wagecontractsareshort),especiallyifinflationislowintheshortrun(pricecontractsarelong). 10 All results not reported here are in an Appendix available from the authors.

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[InsertTable3abouthere.]AsnotedbyHLP(seetheirfootnote13),thebehaviorofrealwagesisnotsensitivetothecapitaladjustmentcostparameter,ψ.Thisisnotafeatureoftheunderlyingmodelbut,rather,isaconsequenceoflog‐linearization.Afterlinearization,thequadraticadjustmentcostsbecomelinear.Tosummarize,wehavediscoveredthat,intheHLPmodel,realwagesbecomemoreprocyclicalinresponsetoamonetarypolicyshock1)themoreimportantintermediategoodsareintheproductionprocess(thelargerφ),2)thestickierpricesarerelativetowages(thelargerNpisrelativetoNw),and3)thesmallertheelasticityofsubstitutionbetweenlaborskills(thesmallerσ).Ontheotherhand,variationineithertheelasticityofsubstitutionbetweengoods(θ)orintheelasticityofvalueaddedwithrespecttocapital(α)haslittleornoeffecton(atleastthedirectionof)thecyclicalresponseofrealwages.II. TheSmetsandWouters(SW)ModelTheSmetsandWouters(2007),SW,modelisapopularmodelforanalyzingmonetarypolicyintheU.S.However,beingconsiderablymorecomplexthantheHLPmodel,itismuchmoredifficulttoanalyticallyevaluatethefactorsthatinfluencethecyclicalbehaviorofrealwages.Werelyprincipallyonsimulationexperimentstodrawourconclusions.TheSWDSGEmodelemploysseveralrealandnominalrigiditiesinadifferentiatedgoodsmarketandadifferentiatedlabormarket.Householdsmaximizeutilitybychoosinginfinite‐horizonconsumptionandlaborpathsassuminghabitformationinconsumption.Householdsalsoaccumulatecapitalsubjecttocapitaladjustmentcostsandrentavariableamountofthatcapitaltofirms.Firmsproduceuniquegoodsbychoosingcapitalandlaborinputs.RatherthanassumingstaggeredpricesandwagesasHLP,SWmodelstickinessforpricesandwagesusingaCalvo(1983)mechanismwhereonlyarandomlyselectedfractionoffirmsandhouseholdsarepermittedtorenegotiatecontractseachperiod.Theparametersgoverningthese

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fractionsaredenoted and where istheproportionoffirmsallowedtore‐optimizepriceseachperiodandwhere isthecorrespondingvalueforhouseholdsandtheirwagecontracts.TheSWmodelassumesthatthosefirmsandhouseholdsnotselectedtoupdatetheircontractshavetheirpricesandwagespartiallyindexedtopastinflation.Werepricesandwagesfullyflexible(i.e. ),theywouldbeequaltoaconstantmarkupoverthemarginalproductoflaborandmarginalrateofsubstitutionbetweenconsumptionandleisure,respectively.AnalogoustotheHLPparameters and ,theSWparameters and capturethesemarkupcoefficientswith and beingthepriceandwagemarkups,respectively.ThemodelisclosedbyassumingthemonetaryauthoritysetstheinterestrateaccordingtoageneralizedTaylorrule.Sevencomponentsofthemodelareinfluencedbystochasticprocesses:totalfactorproductivity,investment‐specifictechnology,theriskpremium,exogenous(government)spending,thepricemark‐up,thewagemark‐up,andmonetarypolicy.SWuseaBayesianlikelihoodapproachtoestimatetheirmodelfortheU.S.over1966:1–2004:4.BecausetheCalvoprice‐andwage‐stickinessparametersaresoimportantforthecyclicalbehavioroftherealwage,wehaveinvestigatedthesensitivityoftheseestimatestoalternativepriors.Thoughwefindthattheposteriormeansforξpvarybetween0.47and0.76andtheposteriormeansforξwvarybetween0.66and0.88,wealwaysfindstrongsupportforsignificantpriceandwagestickiness.Onceagain,ourprincipalinterestisindiscoveringhowchangingkeyparametersofthemodelaffectsthecyclicalresponseofrealwagestomonetarypolicyshockswhere,incontrasttotheHLPmodel,monetarypolicyfollowsageneralizedTaylorrulesomonetarypolicyshocksareinterestrateshocksratherthanmoneysupplyshocks.Givenitscomplexity,theSWmodelhas

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manyparametersandotherpropertiesthatcouldpotentiallybeexamined.Inordertomaintainamanageableproject,wemustbeselective.A. VaryingPriceandWageStickinessAsintheHLPmodel,webeginbyinvestigatingtheimpactofchangesintherelativestickinessofpricesandwages.WhereastheHLPmodelassumedstaggeredpricesandwageswithafixeddeterministiccontractlength,priceandwagestickinessintheSWmodeliscapturedbyassumingseparatestochasticCalvomechanismsforpricesandwages.WevarytheCalvopriceandwageparameters,ξpandξw,and,asabove,examinetheconsequencesfortheeffectofaonestandarddeviationmonetarypolicyshockontherealwageafteronequarterasgivenbythevalueofthecorrespondingIRFatahorizonofonequarter.Weallowξpandξwtoeachvarybetween0.0and1.0inincrementsof0.1.11Inthisexercise,foreachpairofselectedvalues,weretainallotherparametersattheiroriginalestimatedvalues.TheresultsarereportedinTable4.Eachcellentryreportsthefirstquarterresponseoftherealwagetoaone‐standarddeviationexpansionaryshocktomonetarypolicy;i.e.,aone‐standard‐deviationdeclineintheinterestrate.[InsertTable4abouthere.] Onceagain,theboldlineinthegridindicatesthedividinglinebetweencountercyclicalandprocyclicalrealwages.TheresultsarebroadlysimilartothosereportedfortheHLPmodel.Weconfirmthatifpricesaresticky(ξp>0.0)butwagesareflexible(ξw=0.0),realwagesarestronglyprocyclical.Similarly,ifwagesaresticky(ξw>0.0)butpricesareflexible(ξp=0.0),realwagesare

11Since,undertheusualCalvoassumptions,firmsresettheirprices(householdsresettheirwages)withprobability1‐ξp(1‐ξw),whenξp=0.0(ξw=0.0)allprices(wages)areflexible.Thoughthemodelcannotbesolvednumericallyinthecasethatbothpricesandwagesareperfectlyflexible(ξp=ξw=0.0),theorysuggeststherealwagewouldbeacyclicalinresponsetoamonetaryshock.Themodelissimilarlynumericallyintractablewhenbothpricesandwagesareperfectlyfixed(ξp=ξw=1.0).

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stronglycountercyclical.Furthermore,weseethatthestickierarewages(thelargerisξw),themorelikelyrealwagesaretobecountercyclicalevenwithsomedegreeofpricestickiness.InordertodrawcomparisonsbetweentheresultsofTable4andtherelatedresultsfromtheHLPmodelreportedinTable1,itisfirstnecessarytohaveamappingbetweenthestickinessparametersofthestaggeredcontractandCalvomodels.Wenotethat isofteninterpretedastheaverageduration(length)ofpricecontracts.12DixonandKara(2005)show,however,thatthisratioiscorrectlyinterpretedastheaverageageofpricecontracts.ThisconfusionhasledsometoanincorrectmappingbetweenξpandNp.AsshownbyDixonandKara,thecorrectmappingis ,or,equivalently, .So,forNp=4,thecontractlengthassumedbyHLPintheirmodel,thecorrespondingvaluefortheCalvoparameter,ξp,is0.6.Asimilarmappingholdsforwagestickinessparameters.Toconsiderasinglecomparison,letNp=Nw=4and,thus,ξp=ξw=0.6.WenotethatfortheHLPmodel,whenφ=0.7,13it’scalibratedvalueforthepostwarU.S.economy,realwagesareprocyclical.TheSWmodelalsoproducesprocyclicalrealwages.AbroadercomparisonsuggeststhatrealwagestendtorespondmoreprocyclicallyintheSWmodelthantheHLPmodelforcomparabledegreesofpriceandwagestickiness.14

B. VaryingtheSteadyStateMarkupParameters

12Forexample,Christiano,Eichenbaum,andEvans(2005)andSmetsandWouters(2007)refertothisratioasgivingtheaveragedurationofpricecontracts.Christiano,Eichenbaum,andEvansfurthersuggestamappingconsistentwith .13AsHLPemphasizeintheirmodel,thecyclicalresponseofrealwagestomonetarypolicyshocksdependscriticallyonthevalueofthisparameterwhichsummarizestherelativeimportanceofintermediategoodsinproduction.Thisparameter,however,doesnothaveacounterpartintheSWmodel.Thus,tocomparetheresultsofthetwomodels,wemustchooseavalueofφfortheHLPmodelthat“fitsthedata”sincetheSWmodelisestimatedusingU.S.data.HLPsuggestthatavalueof0.7isappropriateforthepost‐warU.S.economy.14Forexample,whenNp=2(ξp=0.33)andNw=3(ξp=0.5),theHLPmodelproducescountercyclicalrealwagesinresponsetoamonetaryshockwhiletheSWmodelproducesprocyclicalrealwages.

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Wealsoinvestigatetheeffectsofvaryingthesteadystatemarkupparametersinboththelaborandgoodsmarkets, and respectively.TheseexactlycorrespondtothemarkupsrelatedtoσandθintheHLPmodel, and respectively.SWcalibrate tobe1.5andestimate tobe1.6.Asinourexperimentfor and inHLP,welet and eachtakeonvaluesof1.5,3.0,and11.0correspondingtosteadystatemarkupsof3.0,1.5,and1.1,respectively.TheresultsarereportedinTables5and6.FromTable5,weseethatforanygivenvalueof ,realwagesbecomemorecountercyclicalas increases,whichisanalogoustotheresultsfortheHLPmodel(recallTable2).Ontheotherhand,forafixedvalueof ,asweseeinTable6,realwagesbecomeslightlymorecountercyclicalasthepricemarkupincreases.RecallthatinHLP,varyingtheθ,thecorrespondingparameter,hadnoinfluenceontherealwagecyclicality.AstheSWmodelhasalesstransparentmonetarytransmissionmechanism,wehypothesizethat,unlikeintheHLPmodel,thepricemarkupdoesindirectlyinfluencetheMRS(marginalrateofsubstitutionbetweenconsumptionandleisure)insuchawayastoincentivizeearlyearningsoverundercuttingotherlaborers’wages.[InsertTables5‐6abouthere.]

C. VaryingtheElasticityofIntertemporalLaborSubstitutionNowweinvestigatetheeffectofchangingthelaborsupplyelasticityintheSWmodel.Weexaminethecyclicalresponseofrealwagesforfouralternativevaluesofthelaborsupplyelasticity,σl:1.0,1.5,3.0,and10.0.TheSWestimatedvalueis1.53.OurresultsarereportedinTable7.Notethattheotherparametervaluesarenotreestimated,buttakenatthevaluesestimatedbySW.[InsertTable7abouthere.]

16

Wenotethat,whenpricesarecompletelyflexibleandwagesfullysticky(ξp=0.0andξw=1.0),changesinlaborsupplyelasticitymakeessentiallynodifference.Thismustreflectthefactthatwhenpricesarefullyflexibleandwagesarefixedbycontract,theeffectivelaborsupplycurvebecomesperfectlyelastic(horizontal)andtheelasticityoftheutility‐maximizinglaborsupplycurveisirrelevant.15Ontheotherhand,whenpricesarefullystickyandwagesflexible(ξp=1.0andξw=0.0),changesinlaborsupplyelasticitymakeamuchlargerdifferenceinthecyclicalresponseofrealwages.Overall,however,eventhoughtherangeofvaluesforthelaborsupplyelasticityisquitewide,changesdon’tmakeasubstantialdifferenceinthecyclicalresponseofrealwagestomonetaryshocks.Inparticular,thereferencelinedividingtherangeofcountercyclicalandprocyclicalrealwagesdoesnotchangemarkedlyasweincreasethelaborsupplyelasticityfrom1.0to10.0.ThisresultissimilartotheHLPresultsfor wherewealsoobservedverylittlechangeinthemagnitudeordirectionofcyclicality.Whilewedoobservesomemovementintheprocyclicaldirectionas increaseswhenwagesareflexibleandpricessticky,themagnitudeofchangeisfarsmallerthanintheHLPresults.D. VaryingtheKimballAggregatorParameterTraditionalDSGEmodelshavetypicallyusedtheDixit‐Stiglitz(CES)aggregatorinthelaborandintermediategoodsmarkets.SWusethemoregeneralKimballaggregator;seeKimball(1995).TheKimballaggregatorismoreflexibleinthatitallowstheelasticityofdemandtoincreaseasrelativepriceincreasesdependingonthevalueoftheKimballparameter,ε.TheDixit‐Stiglitzmodelisaspecialcasewithε=0.TheKimballaggregatorisappliedinboththegoodsandlabormarketswithparametersdenotedεpandεwrespectively.SWcalibratedthevaluesofbothεpandεw

15 Note that this explanation would indicate that there would be no change in the cyclicality of the real wage as the

elasticity varies. As our results are asymptotic approximations of the perfectly sticky and fully flexible cases, we

only observe approximate invariance to the elasticity.

17

tobe10.0;thesearethevaluesassumedforallprevioustablesreportingresultsfortheSWmodel.Hereweconsidertwoadditionalvalues:εp=εw=0.0whichcollapsestotheDixit‐Stiglitzspecialcaseandεp=εw=33.0whichisthevaluesuggestedbyKimballinhisoriginalpaper.Ahighervalueofεpmeansthatthedemandfordifferentiatedgoodsbecomesmoreelasticastherelativepriceincreases.Similarly,ahighervalueofεwmeansthatthedemandfordifferentiatedlaborbecomesmoreelasticastherelativewageincreases.Whilewehaveinvestigatedtheconsequencesofvaryingthevalueofεpforeachofthethreechoicesofvaluesofεw,tosavespace,wereportonlyasubsetoftheseresultsinTable8.16There,weseeevidencethat,givenεp,increasingεwimpliesgreaterrealwagecountercyclicalityand,givenεw,increasingεpimplieslessrealwagecountercyclicality.Fromthefullresults,wefindthat,asweincreaseεpandεwtogether,thereisonlyanegligibleeffectonthecountercyclicalresponseofrealwages. [InsertTable8abouthere.]TounderstandthephenomenonobservedinTable8,considerthemarketforlabor.Asthecurvatureoflabordemand(εw)increases,thelabordemandcurvebowsawayfromtheorigin.Forpointsonthecurvewithhigherwagesthanattheinflectionpoint(whereourmarketlikelywillbeinequilibriumgiventhemonopolypowerofthehouseholds),thisimpliesalesssteepcurve.Thus,whenthelaborsupplycurveshiftsupinresponsetoamonetarypolicyshock,thecorrespondingchangeinnominalwagewillbesmallerforhigherlevelsofcurvature.Thusourrealwageswillbemorecountercyclical.

16 The full results are contained in an Appendix available from the authors on request.

18

Theresultforchangesinεpisexplainedbysimilarreferencetotheintermediategoodsmarket.Changesinpricewillbelessdrasticforhighercurvature,leadingtoamoreprocyclicalrealwageinresponsetoamonetarypolicyshock.III. SummaryOurinvestigationhasconfirmedthat,asexpected,relativewageandpricestickinessplaysaveryimportantroleinthecyclicalresponseofrealwagestomonetarypolicyshocks.Furthermore,weobtainqualitativelysimilarresultsfortwomodels.ForboththeHLPandSWDSGEmodels,aswagesbecomestickierrelativetoprices,realwagesbecomemorecountercyclicalinresponsetochangesinmonetarypolicy.However,itisimportanttonotethataprocyclicalrealwageresponsedoesnotnecessarilymeanthatpricesarestickierthanwagesasmeasuredbythestickinessparametersofthesemodels.Indeed,inbothmodels,otherthingsequal,whenwagesandpricesareequallysticky,realwagestendtobeprocyclical.Thus,merelyfromtheobservationthatrealwagesseemtorespondprocyclicallytomonetaryshocks,itismisguidedtoconclude,assomehavedone,17thatpricesarestickierthanwages.Thisreflectsthefactthatthereareotherimportantfactorsthatarerelevanttothebehaviorofrealwages.Themajorpurposeofourinvestigationhasbeentoexaminetheseotherfactors.Wehavediscoveredthatsomeofthemhavesignificanteffects.Bothmodelshaverevealedthattheelasticityofsubstitutionbetweendifferentiatedlaborandtheimpliedwagemarkupcoefficientsareimportant.Whenwagesaresticky,realwagesbecomemorecountercyclicalinresponsetoamonetaryshockasthiselasticityincreasesregardlessofthestickinessofprices.Themodelsofferslightlydifferent(butnotopposite)implicationswhenwagesareflexible:IntheHLPmodel,increasesinthiselasticityhavenoeffectwhileintheSWmodelweseeslightlymorecountercyclicalwagesinthiscase.WeascribethisdifferencetothehighercomplexityoftheSWmodelwhichallowsmorecomplicatedeffects. 17 See the discussion in the introduction to this paper and the references cited there.

19

Themodelsareinbroadagreementregardingtheeffectsofchangesintheelasticityofintertemporallaborsubstitution.Bothmodelssuggestthatwhenwagesarestickyrelativetoprices,increasesinthiselasticityhavearathersmalleffect.Ontheotherhand,whenpricesarestickyrelativetowages,increasesinthiselasticitycausetherealwagetorespondmoreprocyclicallytoamonetarypolicyshock.Eachmodelalsohasparametersthatseemtoplayanimportantroleforwhichthereisnocounterpartintheother.Forexample,akeyparameterintheHLPmodel,φ,reflectstherelativeimportanceofintermediategoodsinproduction.WeconfirmandextendtheHLPfindingthatincreasesinφcauserealwagestobemoreprocyclicalforallpairsofwageandpricestickinessparametervalues.AsindicatedbyHLP,thisisconsistentwiththeconventionalwisdomregardingthechangingcyclicalityofrealwagesduringthepostwarperiodinwhichintermediategoodshavebecomeincreasinglyimportant.TheSWmodelalsoincludesamoreflexibleaggregatorfunction,theKimballaggregator.ThisaggregatorgeneralizestheusualDixit‐Stiglitzaggregatorbyincludinganadditionalparameterwhichallowstheelasticityofdemandtoincreaseasrelativepriceincreases.WefindthatiftheKimballparameterincreasessymmetricallyinboththeintermediategoodsandlabormarkets,ithaslittleeffectonthecyclicalresponseofrealwages.However,ifthevalueoftheKimballparameterislargeringoodsmarketsthanlabormarkets,thiswillproducemoreprocyclicalrealwages.IV. ConclusionManybusinesscycletheoriespositthatmonetaryshockshaverealeffectsasaconsequenceoftheexistenceofstickypricesand/orstickywages.Sincealternativetheorieshavedistinctimplicationsforthecyclicalresponseofrealwagestoamonetarypolicyshock,manypreviousstudieshaveexaminedthebehaviorofrealwagesinordertodrawinferencesabouttherelativestickinessofpricesandwages.Earlystudiesessentiallylooked,inonewayoranother,atthe

20

correlationbetweentherealwageandeitheroutputoremployment.Suchcorrelationswilltelluslittleornothingabouttheresponsetomonetaryshocksifthedataaregeneratedinaworldinwhichtherearenonmonetaryshocksaswell.MorerecentstudieshaveimprovedonthisstateofaffairsbyusingstructuralVAR(SVAR)modelstoisolatetheeffectsofmonetarypolicyshocksonrealwages.However,thevalidityofthisapproachdependsontheassumptionthattheresponseofrealwagestoamonetarypolicyshockreflectsonlytherelativestickinessofwagesandprices,notothercharacteristicsoftheeconomy.Thepurposeofthispaperhasbeentoexaminethisimplicitassumption.UsingtwodifferentDSGEmodels,wehaveexaminedtheroleofotherfactorsinexplainingthecyclicalresponseofrealwagestomonetarypolicychangesandhavefoundthatseveraloftheseappeartoplayimportantroles.Asaconsequence,todrawinferencesabouttherelativestickinessofwagesandprices,itisnotenoughtolookathowrealwagesrespondtomonetarypolicy.Itseemsthatitisnecessarytofinddirectmeasuresofthestickinessofwagesandprices.SWhavedonethisintheirmodelsincetheyestimatetheCalvostickinessparametersusinghistoricaldata.Thoughweonlylookathowcharacteristicsofamodeleconomyaffecttheinfluenceofmonetarypolicyonrealwages,theresponseofothervariablestomonetaryshockswillalsobeaffectedinimportantwaysbycharacteristicsofthemodel.Justhowisatopicforfutureresearch.Allofthisremindsusthatwhilethetransmissionmechanismformonetarypolicymaynotseemcomplicatedintheseandrelatedmodels,itinfactdependsonmanyparametersincomplexways.

21

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McCallum,BennetT.“On‘Real’and‘Sticky‐Price’TheoriesoftheBusinessCycle.”JournalofMoney,Credit,andBanking,November1986,397‐414.

Smets,Frank,andRafaelWouters.“ShocksandFrictionsinUSBusinessCycles:ABayesianDSGEApproach.”AmericanEconomicreview,97.3,June2007,586‐606.Spencer,DavidE.“TheRelativeStickinessofWagesandPrices.”EconomicInquiry,36.1,January1998,120‐137.Sumner,Scott,andStephenSilver.“RealWages,Employment,andthePhillipsCurve.”Journalof

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23

Table1:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaonepercentincreaseinthemoneygrowthrateacrosspairsofvaluesofNpandNwandforselectedvaluesofφintheHLPmodel. (Interwarcalibratedvalue)

Price Stickiness (Np) 

   1  2  3  4  5  6  7  8 

Wage Stickiness (N

w) 

1  9.29  15.33  19.99  23.81  27.06  29.90  32.43 2  ‐1.32  0.02  1.28  2.33  3.21  3.97  4.63  5.23 

3  ‐1.75  ‐0.57  0.00  0.56  1.02  1.42  1.77  2.09 

4  ‐1.97  ‐0.84  ‐0.33  ‐0.01  0.31  0.58  0.81  1.02 

5  ‐2.13  ‐1.00  ‐0.51  ‐0.22  0.00  0.20  0.37  0.52 6  ‐2.25  ‐1.10  ‐0.62  ‐0.34  ‐0.15  0.00  0.14  0.26 7  ‐2.35  ‐1.18  ‐0.70  ‐0.42  ‐0.24  ‐0.10  0.00  0.11 8  ‐2.44  ‐1.24  ‐0.75  ‐0.48  ‐0.30  ‐0.17  ‐0.07  0.01  (Postwarcalibratedvalue)

Price Stickiness (Np)    1  2  3  4  5  6  7  8 

Wage Stickiness (N

w)  

1  12.01  19.12  24.30  28.44  31.94  34.99  37.73 2  ‐1.32  0.46  1.94  3.13  4.11  4.94  5.67  6.32 

3  ‐1.75  ‐0.30  0.37  0.98  1.48  1.92  2.30  2.65 4  ‐1.97  ‐0.60  ‐0.06  0.30  0.63  0.91  1.15  1.37 5  ‐2.13  ‐0.76  ‐0.27  0.02  0.25  0.45  0.63  0.79 

6  ‐2.25  ‐0.87  ‐0.39  ‐0.12  0.06  0.21  0.35  0.47 

7  ‐2.35  ‐0.95  ‐0.47  ‐0.21  ‐0.05  0.08  0.18  0.28 8  ‐2.44  ‐1.01  ‐0.53  ‐0.28  ‐0.12  0.00  0.09  0.16 

24

Table2:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaonepercentincreaseinthemoneygrowthrateacrosspairsofvaluesofNpandNwandforselectedvaluesofσintheHLPmodel.σ=1.5(Wagemarkup=3.0)

Price Stickiness (Np)

   1  2  3 4 5 6 7 8 Wage Stickiness (N

w) 

1  12.01  19.12 24.30 28.44 31.94 34.99  37.73 2  ‐1.09  0.96  2.95 4.52 5.78 6.84 7.77  8.59 3  ‐1.51  0.03  0.85 1.69 2.38 2.97 3.49  3.95 4  ‐1.74  ‐0.33  0.27 0.72 1.18 1.57 1.91  2.22 5  ‐1.89  ‐0.54  0.00 0.34 0.62 0.90 1.15  1.37 6  ‐2.01  ‐0.67  ‐0.17 0.13 0.34 0.53 0.73  0.90 7  ‐2.11  ‐0.76  ‐0.28 0.00 0.19 0.34 0.47  0.61 8  ‐2.20  ‐0.83  ‐0.36 ‐0.10 0.08 0.21 0.32  0.42 

σ=3.0(Wagemarkup=1.5)Price Stickiness (Np)

   1  2  3 4 5 6 7 8 

Wage Stickiness (N

w) 

1  12.01  19.12 24.30 28.44 31.94 34.99  37.73 2  ‐1.32  0.46  1.94 3.13 4.11 4.94 5.67  6.32 3  ‐1.75  ‐0.30  0.37 0.98 1.48 1.92 2.30  2.65 4  ‐1.97  ‐0.60  ‐0.06 0.30 0.63 0.91 1.15  1.37 5  ‐2.13  ‐0.76  ‐0.27 0.02 0.25 0.45 0.63  0.79 6  ‐2.25  ‐0.87  ‐0.39 ‐0.12 0.06 0.21 0.35  0.47 7  ‐2.35  ‐0.95  ‐0.47 ‐0.21 ‐0.05 0.08 0.18  0.28 8  ‐2.44  ‐1.01  ‐0.53 ‐0.28 ‐0.12 0.00 0.09  0.16 

σ=11.0(Wagemarkup=1.1)Price Stickiness (Np)

   1  2  3 4 5 6 7  8 

Wage Stickiness (N

w) 

1  12.01  19.12 24.30 28.44 31.94 34.99  37.73 2  ‐1.91  ‐0.42  0.42 1.05 1.56 2.00 2.39  2.74 3  ‐2.31  ‐0.90  ‐0.38 ‐0.02 0.25 0.47 0.66  0.82 4  ‐2.53  ‐1.09  ‐0.59 ‐0.32 ‐0.12 0.04 0.16  0.26 5  ‐2.56  ‐1.19  ‐0.69 ‐0.43 ‐0.27 ‐0.14 ‐0.04  0.04 6  ‐2.55  ‐1.25  ‐0.75 ‐0.49 ‐0.34 ‐0.23 ‐0.14  ‐0.07 7  ‐2.54  ‐1.29  ‐0.79 ‐0.53 ‐0.37 ‐0.27 ‐0.19  ‐0.13 8  ‐2.53  ‐1.32  ‐0.81 ‐0.55 ‐0.39 ‐0.29 ‐0.22  ‐0.17 

25

Table3:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaonepercentincreaseinthemoneygrowthrateacrosspairsofvaluesofNpandNwandforselectedvaluesof intheHLPmodel.=1.00

Price Stickiness (Np)    1  2  3  4  5  6  7  8 

Wage Stickiness (N

w) 

1  7.67  11.71  14.50  16.67  18.50  20.10  21.54 2  ‐1.27  0.41  1.68  2.62  3.36  3.97  4.49  4.95 

3  ‐1.68  ‐0.29  0.33  0.87  1.30  1.65  1.96  2.23 4  ‐1.90  ‐0.57  ‐0.06  0.27  0.57  0.81  1.02  1.21 5  ‐2.05  ‐0.73  ‐0.25  0.03  0.23  0.42  0.57  0.71 

6  ‐2.17  ‐0.83  ‐0.37  ‐0.11  0.06  0.20  0.33  0.43 7  ‐2.26  ‐0.91  ‐0.44  ‐0.20  ‐0.04  0.08  0.18  0.27 8  ‐2.35  ‐0.97  ‐0.50  ‐0.26  ‐0.10  0.00  0.09  0.16 

=1.50

Price Stickiness (Np)    1  2  3  4  5  6  7  8 

Wage Stickiness (N

w) 

1  9.97  15.59  19.59  22.77  25.44  27.77  29.87 2  ‐1.30  0.44  1.84  2.93  3.81  4.55  5.19  5.76 

3  ‐1.72  ‐0.30  0.36  0.94  1.41  1.82  2.17  2.48 4  ‐1.95  ‐0.59  ‐0.06  0.29  0.61  0.87  1.10  1.31 5  ‐2.10  ‐0.75  ‐0.26  0.03  0.24  0.44  0.61  0.76 

6  ‐2.22  ‐0.85  ‐0.38  ‐0.12  0.06  0.21  0.34  0.46 7  ‐2.31  ‐0.93  ‐0.46  ‐0.21  ‐0.04  0.08  0.18  0.28 8  ‐2.40  ‐0.99  ‐0.52  ‐0.27  ‐0.11  0.00  0.09  0.16 

26

Table3(cont.)=3.00

Price Stickiness (Np)    1  2  3  4  5  6  7  8 

Wage Stickiness (N

w) 

1  15.56  25.42  32.85  38.86  43.95  48.40  52.36 2  ‐1.34  0.48  2.06  3.37  4.48  5.45  6.31  7.07 

3  ‐1.77  ‐0.31  0.38  1.03  1.56  2.04  2.46  2.85 4  ‐2.00  ‐0.61  ‐0.06  0.30  0.65  0.95  1.21  1.45 5  ‐2.16  ‐0.78  ‐0.27  0.02  0.25  0.47  0.65  0.82 

6  ‐2.28  ‐0.89  ‐0.40  ‐0.13  0.06  0.21  0.36  0.49 

7  ‐2.39  ‐0.96  ‐0.48  ‐0.22  ‐0.05  0.08  0.19  0.29 8  ‐2.44  ‐1.02  ‐0.54  ‐0.28  ‐0.12  0.00  0.09  0.16 

=10.0

Price Stickiness (Np)    1  2  3  4  5  6  7  8 

Wage Stickiness (N

w) 

1  32.52  55.70 75.08 91.79 106.41  119.39  131.03 2  ‐1.38  0.51  2.27  3.81  5.20  6.46  7.62  8.69 

3  ‐1.82  ‐0.32  0.41  1.11  1.71  2.26  2.76  3.23 4  ‐2.06  ‐0.63  ‐0.07  0.32  0.70  1.02  1.32  1.59 5  ‐2.22  ‐0.80  ‐0.28  0.02  0.26  0.50  0.70  0.88 

6  ‐2.35  ‐0.91  ‐0.41  ‐0.13  0.06  0.22  0.38  0.51 

7  ‐2.44  ‐0.99  ‐0.50  ‐0.23  ‐0.05  0.08  0.19  0.30 8  ‐2.45  ‐1.05  ‐0.56  ‐0.29  ‐0.13  ‐0.01  0.09  0.17 

27

Table4:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaone‐standard‐deviationdeclineintheinterestrateacrosspairsofvaluesofξpandξwintheSWmodel.

Price Stickiness (ξp)    0.0  0.1  0.2  0.3  0.4  0.5  0.6  0.7  0.8  0.9  1.0 

Wage Stickiness (ξ w) 

0.0  0.20  0.32  0.43  0.54  0.65  0.77  0.91  1.09  1.43  2.43 0.1  ‐0.01  0.15  0.26  0.35  0.44  0.53  0.63  0.75  0.91  1.22  2.13 0.2  ‐0.01  0.12  0.20  0.28  0.35  0.43  0.51  0.61  0.75  1.03  1.85 0.3  ‐0.01  0.09  0.15  0.21  0.27  0.34  0.41  0.49  0.60  0.85  1.59 0.4  ‐0.02  0.06  0.11  0.16  0.20  0.25  0.31  0.38  0.47  0.68  1.35 0.5  ‐0.02  0.03  0.07  0.11  0.14  0.18  0.22  0.27  0.35  0.53  1.11 0.6  ‐0.03  0.01  0.04  0.06  0.09  0.11  0.15  0.18  0.24  0.39  0.88 

0.7  ‐0.03  ‐0.01  0.01  0.03  0.04  0.06  0.08  0.11  0.15  0.26  0.66 

0.8  ‐0.04  ‐0.03  ‐0.02  ‐0.01  0.00  0.01  0.03  0.04  0.07  0.15  0.44 

0.9  ‐0.05  ‐0.04  ‐0.04  ‐0.03  ‐0.02  ‐0.02  ‐0.01  0.00  0.01  0.06  0.22 1.0  ‐0.08  ‐0.07  ‐0.06  ‐0.05  ‐0.05  ‐0.04  ‐0.03  ‐0.02  ‐0.01  0.01    

28

Table5:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaone‐standard‐deviationdeclineintheinterestrateacrosspairsofvaluesofξpandξwandforselectedvaluesof ,given =1.6,intheSWmodel. =1.5(Wagemarkup=3.0)

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7  0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.20  0.33  0.44 0.54 0.65 0.77 0.91  1.09  1.42 1.96

0.1  ‐0.01  0.14  0.24  0.33 0.41 0.50 0.60 0.71  0.86  1.15 1.63

0.2  ‐0.01  0.10  0.18  0.25 0.31 0.38 0.46 0.55  0.68  0.94 1.36

0.3  ‐0.02  0.07  0.13  0.18 0.23 0.29 0.35 0.42  0.53  0.75 1.13

0.4  ‐0.02  0.04  0.09  0.13 0.17 0.21 0.26 0.31  0.40  0.59 0.93

0.5  ‐0.02  0.02  0.05  0.08 0.11 0.14 0.18 0.22  0.29  0.45 0.74

0.6  ‐0.03  0.00  0.02  0.04 0.06 0.08 0.11 0.14  0.19  0.33 0.57

0.7  ‐0.04  ‐0.02  0.00  0.01 0.02 0.04 0.06 0.08  0.11  0.22 0.41

0.8  ‐0.04  ‐0.03  ‐0.02  ‐0.01 ‐0.01 0.00 0.01 0.03  0.05  0.12 0.26

0.9  ‐0.06  ‐0.05  ‐0.04  ‐0.03 ‐0.03 ‐0.02 ‐0.02 ‐0.01  0.01  0.05 0.12

1.0  ‐0.07  ‐0.06  ‐0.05  ‐0.05 ‐0.04 ‐0.04 ‐0.03 ‐0.02  ‐0.01  0.02   =3.0(Wagemarkup=1.5)Price Stickiness (ξp)

   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7 0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.20  0.33  0.44 0.55 0.66 0.78 0.92  1.09  1.39 2.18

0.1  ‐0.01  0.09  0.16  0.23 0.29 0.36 0.43 0.52  0.64  0.87 1.52

0.2  ‐0.02  0.05  0.10  0.14 0.18 0.23 0.28 0.34  0.43  0.62 1.19

0.3  ‐0.02  0.02  0.05  0.08 0.11 0.15 0.18 0.23  0.30  0.46 0.95

0.4  ‐0.03  0.00  0.03  0.05 0.07 0.09 0.12 0.15  0.21  0.34 0.77

0.5  ‐0.03  ‐0.01  0.00  0.02 0.03 0.05 0.07 0.10  0.14  0.25 0.61

0.6  ‐0.04  ‐0.02  ‐0.01  0.00 0.01 0.02 0.03 0.05  0.08  0.17 0.47

0.7  ‐0.04  ‐0.03  ‐0.03  ‐0.02 ‐0.01 0.00 0.01 0.02  0.04  0.11 0.35

0.8  ‐0.05  ‐0.04  ‐0.04  ‐0.03 ‐0.03 ‐0.02 ‐0.01 0.00  0.01  0.06 0.22

0.9  ‐0.06  ‐0.06  ‐0.05  ‐0.04 ‐0.04 ‐0.03 ‐0.03 ‐0.02  ‐0.01  0.02 0.10

1.0  ‐0.09  ‐0.08  ‐0.08  ‐0.07 ‐0.06 ‐0.05 ‐0.04 ‐0.03  ‐0.01  0.00  

29

Table5(cont.) =11.0(Wagemarkup=1.1)

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7  0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.20  0.33  0.44 0.55 0.67 0.79 0.93  1.09  1.37 1.74

0.1  ‐0.02  0.02  0.06  0.09 0.12 0.16 0.20 0.25  0.32  0.48 0.75

0.2  ‐0.03  0.00  0.02  0.03 0.05 0.07 0.10 0.13  0.18  0.30 0.52

0.3  ‐0.04  ‐0.02  ‐0.01  0.01 0.02 0.03 0.05 0.07  0.11  0.21 0.39

0.4  ‐0.04  ‐0.03  ‐0.02  ‐0.01 0.00 0.01 0.02 0.04  0.07  0.14 0.29

0.5  ‐0.04  ‐0.04  ‐0.03  ‐0.02 ‐0.01 ‐0.01 0.00 0.01  0.04  0.10 0.22

0.6  ‐0.05  ‐0.04  ‐0.04  ‐0.03 ‐0.02 ‐0.02 ‐0.01 0.00  0.02  0.07 0.16

0.7  ‐0.05  ‐0.05  ‐0.04  ‐0.04 ‐0.03 ‐0.03 ‐0.02 ‐0.01  0.00  0.04 0.11

0.8  ‐0.06  ‐0.05  ‐0.05  ‐0.04 ‐0.04 ‐0.04 ‐0.03 ‐0.02  ‐0.01  0.02 0.06

0.9  ‐0.08  ‐0.07  ‐0.06  ‐0.06 ‐0.05 ‐0.05 ‐0.04 ‐0.03  ‐0.02  0.00 0.02

1.0  ‐0.09  ‐0.08  ‐0.08  ‐0.07 ‐0.06 ‐0.05 ‐0.04 ‐0.03  ‐0.02  0.00  

30

Table6:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaone‐standard‐deviationdeclineintheinterestrateacrosspairsofvaluesofξpandξwandforselectedvaluesof ,given =1.5,intheSWmodel. =1.5(Pricemarkup=3.0)

Price Stickiness (ξp)    0.0  0.1  0.2  0.3  0.4  0.5  0.6  0.7  0.8  0.9  1.0 

Wage Stickiness (ξ w) 

0.0  0.62  0.78  0.90  1.00  1.10  1.24  1.46  1.84  2.39  2.62 0.1  0.00  0.51  0.64  0.74  0.83  0.93  1.05  1.25  1.59  2.09  2.30 0.2  0.00  0.41  0.52  0.61  0.68  0.77  0.88  1.05  1.36  1.81  2.00 0.3  0.00  0.32  0.41  0.48  0.55  0.62  0.72  0.88  1.15  1.55  1.72 0.4  0.00  0.24  0.32  0.37  0.42  0.49  0.57  0.71  0.95  1.30  1.45 0.5  0.00  0.17  0.23  0.27  0.31  0.36  0.44  0.55  0.76  1.07  1.20 0.6  0.00  0.11  0.15  0.18  0.22  0.26  0.31  0.41  0.58  0.84  0.95 0.7  0.00  0.06  0.09  0.11  0.13  0.16  0.21  0.28  0.42  0.62  0.70 0.8  ‐0.01  0.02  0.04  0.05  0.06  0.08  0.11  0.17  0.26  0.41  0.47 

0.9  ‐0.01  0.00  0.00  0.01  0.01  0.02  0.04  0.07  0.12  0.20  0.23 1.0  ‐0.01  ‐0.01  ‐0.01  0.00  0.00  0.01  0.01  0.03  0.05  0.09     =3.0(Pricemarkup=1.5)

Price Stickiness (ξp)    0.0  0.1  0.2  0.3  0.4  0.5  0.6  0.7  0.8  0.9  1.0 

Wage Stickiness (ξ w) 

0.0  0.35  0.51  0.63  0.74  0.84  0.95  1.08  1.29  1.81  2.63 0.1  0.00  0.28  0.41  0.51  0.61  0.70  0.79  0.91  1.09  1.57  2.31 0.2  ‐0.01  0.22  0.33  0.41  0.49  0.57  0.65  0.75  0.91  1.34  2.01 0.3  ‐0.01  0.17  0.26  0.32  0.39  0.45  0.52  0.60  0.75  1.13  1.73 0.4  ‐0.01  0.13  0.19  0.24  0.29  0.34  0.40  0.47  0.60  0.94  1.47 0.5  ‐0.01  0.09  0.13  0.17  0.21  0.25  0.29  0.35  0.46  0.75  1.21 0.6  ‐0.01  0.05  0.08  0.11  0.14  0.17  0.20  0.25  0.33  0.58  0.97 0.7  ‐0.02  0.02  0.04  0.06  0.08  0.10  0.12  0.15  0.22  0.41  0.72 

0.8  ‐0.02  0.00  0.01  0.02  0.03  0.04  0.05  0.07  0.12  0.26  0.48 

0.9  ‐0.03  ‐0.02  ‐0.02  ‐0.01  ‐0.01  0.00  0.01  0.02  0.04  0.12  0.24 1.0  ‐0.04  ‐0.04  ‐0.03  ‐0.02  ‐0.02  ‐0.01  ‐0.01  0.00  0.01  0.03    

31

Table6(cont.) =11.0(Pricemarkup=1.1)

Price Stickiness (ξp)    0.0  0.1  0.2  0.3  0.4  0.5  0.6  0.7  0.8  0.9  1.0 

Wage Stickiness (ξ w) 

0.0  0.18  0.30  0.41  0.51  0.62  0.74  0.88  1.06  1.39  1.93 0.1  ‐0.01  0.14  0.24  0.33  0.42  0.51  0.61  0.73  0.89  1.18  1.67 0.2  ‐0.01  0.11  0.19  0.26  0.33  0.41  0.49  0.60  0.73  0.99  1.44 0.3  ‐0.02  0.08  0.14  0.20  0.26  0.32  0.39  0.47  0.59  0.82  1.22 0.4  ‐0.02  0.05  0.10  0.15  0.19  0.24  0.29  0.36  0.46  0.66  1.01 0.5  ‐0.02  0.03  0.06  0.10  0.13  0.17  0.21  0.26  0.34  0.51  0.82 0.6  ‐0.03  0.01  0.03  0.06  0.08  0.11  0.14  0.18  0.23  0.37  0.63 

0.7  ‐0.04  ‐0.01  0.01  0.02  0.04  0.05  0.07  0.10  0.14  0.25  0.46 

0.8  ‐0.04  ‐0.03  ‐0.02  ‐0.01  0.00  0.01  0.02  0.04  0.07  0.14  0.29 

0.9  ‐0.06  ‐0.05  ‐0.04  ‐0.03  ‐0.03  ‐0.02  ‐0.01  ‐0.01  0.01  0.05  0.14 1.0  ‐0.07  ‐0.06  ‐0.05  ‐0.05  ‐0.04  ‐0.04  ‐0.03  ‐0.02  ‐0.01  0.02    

32

Table7:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaone‐standard‐deviationdeclineintheinterestrateacrosspairsofvaluesofξpandξwandforselectedvaluesofσlintheSWmodel.σl=1.00

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7 0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.19  0.32  0.42 0.53 0.63 0.75 0.87  1.04  1.39 2.41

0.1  ‐0.01  0.15  0.25  0.34 0.42 0.51 0.61 0.72  0.86  1.17 2.08

0.2  ‐0.01  0.11  0.20  0.27 0.34 0.41 0.49 0.58  0.70  0.97 1.78

0.3  ‐0.02  0.08  0.15  0.20 0.26 0.32 0.38 0.45  0.55  0.79 1.51

0.4  ‐0.02  0.06  0.10  0.15 0.19 0.23 0.28 0.34  0.43  0.63 1.25

0.5  ‐0.02  0.03  0.07  0.10 0.13 0.16 0.20 0.25  0.31  0.48 1.01

0.6  ‐0.03  0.01  0.03  0.06 0.08 0.10 0.13 0.16  0.21  0.35 0.78

0.7  ‐0.04  ‐0.01  0.01  0.02 0.03 0.05 0.07 0.09  0.12  0.23 0.57

0.8  ‐0.04  ‐0.03  ‐0.02  ‐0.01 0.00 0.01 0.02 0.03  0.06  0.13 0.37

0.9  ‐0.06  ‐0.05  ‐0.04  ‐0.03 ‐0.03 ‐0.02 ‐0.01 ‐0.01  0.01  0.05 0.18

1.0  ‐0.08  ‐0.07  ‐0.06  ‐0.06 ‐0.05 ‐0.04 ‐0.03 ‐0.02  ‐0.01  0.01  σl=1.50

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7 0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.19  0.32  0.43 0.54 0.65 0.77 0.90  1.07  1.42 2.42

0.1  ‐0.01  0.15  0.26  0.35 0.44 0.53 0.63 0.75  0.90  1.21 2.12

0.2  ‐0.01  0.12  0.20  0.28 0.35 0.42 0.51 0.61  0.74  1.01 1.84

0.3  ‐0.02  0.09  0.15  0.21 0.27 0.33 0.40 0.48  0.59  0.84 1.57

0.4  ‐0.02  0.06  0.11  0.15 0.20 0.25 0.30 0.37  0.46  0.67 1.33

0.5  ‐0.02  0.03  0.07  0.11 0.14 0.18 0.22 0.27  0.34  0.52 1.09

0.6  ‐0.03  0.01  0.04  0.06 0.09 0.11 0.14 0.18  0.24  0.38 0.86

0.7  ‐0.03  ‐0.01  0.01  0.02 0.04 0.06 0.08 0.10  0.14  0.26 0.64

0.8  ‐0.04  ‐0.03  ‐0.02  ‐0.01 0.00 0.01 0.03 0.04  0.07  0.15 0.42

0.9  ‐0.05  ‐0.04  ‐0.04  ‐0.03 ‐0.03 ‐0.02 ‐0.01 0.00  0.01  0.06 0.21

1.0  ‐0.08  ‐0.07  ‐0.06  ‐0.06 ‐0.05 ‐0.04 ‐0.03 ‐0.02  ‐0.01  0.01  

33

Table7(cont.)σl=3.00

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7 0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.20  0.34  0.46 0.57 0.69 0.82 0.98  1.17  1.52 2.47

0.1  ‐0.01  0.16  0.27  0.37 0.47 0.57 0.69 0.82  1.00  1.32 2.22

0.2  ‐0.01  0.13  0.22  0.30 0.38 0.47 0.57 0.68  0.84  1.13 1.98

0.3  ‐0.01  0.10  0.17  0.23 0.30 0.37 0.45 0.55  0.69  0.96 1.74

0.4  ‐0.02  0.07  0.12  0.18 0.23 0.29 0.35 0.43  0.55  0.79 1.51

0.5  ‐0.02  0.04  0.08  0.12 0.16 0.21 0.26 0.33  0.42  0.63 1.28

0.6  ‐0.02  0.02  0.05  0.08 0.11 0.14 0.18 0.23  0.30  0.47 1.05

0.7  ‐0.03  0.00  0.02  0.04 0.06 0.08 0.10 0.14  0.19  0.33 0.81

0.8  ‐0.04  ‐0.02  ‐0.01  0.00 0.01 0.03 0.04 0.06  0.10  0.19 0.56

0.9  ‐0.05  ‐0.04  ‐0.03  ‐0.03 ‐0.02 ‐0.01 ‐0.01 0.00  0.02  0.08 0.29

1.0  ‐0.07  ‐0.06  ‐0.06  ‐0.05 ‐0.05 ‐0.04 ‐0.03 ‐0.02  ‐0.01  0.02  σl=10.0

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7  0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.24  0.40  0.54 0.69 0.84 1.01 1.22  1.48  1.87 2.70

0.1  ‐0.01  0.20  0.34  0.46 0.59 0.73 0.88 1.07  1.32  1.70 2.55

0.2  ‐0.01  0.16  0.28  0.39 0.50 0.62 0.76 0.93  1.16  1.52 2.38

0.3  ‐0.01  0.13  0.23  0.32 0.41 0.51 0.63 0.79  0.99  1.34 2.21

0.4  ‐0.01  0.10  0.17  0.25 0.32 0.41 0.51 0.65  0.83  1.15 2.02

0.5  ‐0.01  0.07  0.13  0.19 0.25 0.32 0.40 0.51  0.67  0.96 1.82

0.6  ‐0.02  0.04  0.08  0.13 0.17 0.23 0.29 0.38  0.50  0.76 1.58

0.7  ‐0.02  0.02  0.04  0.07 0.11 0.14 0.19 0.25  0.34  0.55 1.30

0.8  ‐0.03  ‐0.01  0.01  0.03 0.04 0.07 0.09 0.13  0.19  0.34 0.97

0.9  ‐0.04  ‐0.03  ‐0.02  ‐0.01 ‐0.01 0.00 0.02 0.03  0.06  0.15 0.53

1.0  ‐0.06  ‐0.05  ‐0.05  ‐0.04 ‐0.04 ‐0.03 ‐0.03 ‐0.02  0.00  0.03  

34

Table8:VariationintherealwageIRFattheone‐quarterhorizoninresponsetoaone‐standard‐deviationdeclineintheinterestrateacrosspairsofvaluesofξpandξwandforselectedvaluesofεw,givenεp=0,intheSWmodel.εw=0,εp=0(Dixit‐Stiglitzcase)

Price Stickiness (ξp)   0.0  0.1  0.2  0.3 0.4 0.5 0.6 0.7 0.8  0.9 1.0

Wage Stickiness (ξ w) 

0.0  0.04  0.10  0.16 0.23 0.31 0.41 0.54 0.72  1.00 1.62

0.1  ‐0.01  0.04  0.09  0.14 0.21 0.28 0.38 0.50 0.66  0.93 1.51

0.2  ‐0.01  0.03  0.07  0.13 0.18 0.25 0.34 0.45 0.60  0.84 1.40

0.3  ‐0.01  0.02  0.06  0.11 0.16 0.22 0.29 0.39 0.53  0.75 1.27

0.4  ‐0.01  0.02  0.05  0.09 0.13 0.18 0.25 0.33 0.45  0.65 1.13

0.5  ‐0.02  0.01  0.04  0.07 0.10 0.14 0.20 0.27 0.37  0.54 0.97

0.6  ‐0.02  0.00  0.02  0.04 0.07 0.10 0.14 0.20 0.28  0.42 0.80

0.7  ‐0.02  ‐0.01  0.00  0.02 0.04 0.06 0.09 0.13 0.19  0.29 0.61

0.8  ‐0.03  ‐0.02  ‐0.01  ‐0.01 0.01 0.02 0.04 0.06 0.10  0.16 0.40

0.9  ‐0.04  ‐0.04  ‐0.04  ‐0.03 ‐0.03 ‐0.02 ‐0.01 0.00 0.02  0.05 0.19

1.0  ‐0.06  ‐0.06  ‐0.06  ‐0.05 ‐0.05 ‐0.05 ‐0.04 ‐0.04 ‐0.03  ‐0.01  εw=33,εp=0

Price Stickiness (ξp)    0.0  0.1  0.2  0.3  0.4  0.5  0.6  0.7  0.8  0.9  1.0 

Wage Stickiness (ξ w) 

0.0  0.04  0.10  0.16  0.23  0.31  0.41  0.54  0.72  1.00  1.61 0.1  ‐0.01  0.02  0.05  0.09  0.14  0.20  0.26  0.35  0.48  0.69  1.19 0.2  ‐0.02  0.01  0.03  0.06  0.09  0.13  0.18  0.24  0.34  0.50  0.91 

0.3  ‐0.02  ‐0.01  0.01  0.03  0.06  0.08  0.12  0.17  0.24  0.36  0.71 

0.4  ‐0.02  ‐0.01  0.00  0.01  0.03  0.05  0.07  0.11  0.16  0.25  0.54 

0.5  ‐0.03  ‐0.02  ‐0.01  0.00  0.01  0.02  0.04  0.07  0.10  0.17  0.41 

0.6  ‐0.04  ‐0.03  ‐0.02  ‐0.02  ‐0.01  0.00  0.01  0.03  0.06  0.11  0.30 

0.7  ‐0.04  ‐0.04  ‐0.03  ‐0.03  ‐0.02  ‐0.02  ‐0.01  0.00  0.02  0.05  0.20 

0.8  ‐0.05  ‐0.05  ‐0.04  ‐0.04  ‐0.04  ‐0.03  ‐0.03  ‐0.02  ‐0.01  0.02  0.12 

0.9  ‐0.06  ‐0.06  ‐0.06  ‐0.05  ‐0.05  ‐0.05  ‐0.04  ‐0.03  ‐0.03  ‐0.01  0.05 1.0  ‐0.10  ‐0.09  ‐0.09  ‐0.09  ‐0.08  ‐0.08  ‐0.07  ‐0.06  ‐0.04  ‐0.02