Year: 2001
Type: preprint
Abstract: The objective of this paper is to provide an optimizing model of wage and price setting consistent with U.S. data. I first investigate the predictions of an optimizing labor supply model for the aggregate nominal wage, taking as given the evolution of prices and quantities. In this part I seek to determine whether a standard specification of consumption/leisure preferences is consistent with the data, and to what extent nominal or real rigidities in the wage setting process improve the fit withthedata. Then I combine the evolution of wages predicted by this model with the evolution of prices predicted by staggered-price models to provide a model of the joint determination of prices and wages, given the evolution of real quantities. The paper thus supplies a “Phillips curve ” specification that is consistent with intertemporal optimization and rational expectations.
Author: Argia M. Sbordone
Institution: Rutgers, The State University of New Jersey
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1501225381