Our paper derives and estimates a New Keynesian wage Phillips curve that accounts for intrinsic inertia. Our approach considers a wage-setting model featuring an upward-sloping hazard function, that is based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset. According to our specification, we obtain a wage Phillips curve that also includes backward-looking terms, which account for persistence. We test the slope of the hazard function using GMM estimation. Then, placing our equation in a small-scale New Keynesian model, we investigate its dynamic properties using Bayesian estimation. Model comparison shows that our model outperforms commonly used alternative methods to introduce persistence.

Intrinsic persistence of wage inflation in new keynesian models of the business cycles / Di Bartolomeo, Giovanni; Di Pietro, Marco. - In: JOURNAL OF MONEY, CREDIT, AND BANKING. - ISSN 1538-4616. - 49:6(2017), pp. 1161-1195. [10.1111/jmcb.12412]

Intrinsic persistence of wage inflation in new keynesian models of the business cycles

Di Bartolomeo, Giovanni
;
Di Pietro, Marco
2017

Abstract

Our paper derives and estimates a New Keynesian wage Phillips curve that accounts for intrinsic inertia. Our approach considers a wage-setting model featuring an upward-sloping hazard function, that is based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset. According to our specification, we obtain a wage Phillips curve that also includes backward-looking terms, which account for persistence. We test the slope of the hazard function using GMM estimation. Then, placing our equation in a small-scale New Keynesian model, we investigate its dynamic properties using Bayesian estimation. Model comparison shows that our model outperforms commonly used alternative methods to introduce persistence.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11573/1072634
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