Essays on nominal rigidities: Identification, macrodynamic consequences and policy implications

Anderson Grajales Olarte

Research output: ThesisDoctoral ThesisScientific

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Abstract

The dissertation aims to shed light on the identification, measurement, macrodynamic consequences and policy implications of nominal wage rigidity. In the first chapter, a New-Keynesian DSGE model with heterogeneity in price and wage setting behavior is estimated using Bayesian techniques for the United States economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. Qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, are identified. Standard New Keynesian model with only Calvo-type wage rigidity fails to achieve these features.
In the second chapter, the stability and welfare effects of greater wage flexibility in an economy with limited asset market participation (LAMP) are analyzed. The results show that once LAMP is considered, greater wage flexibility increases the volatility of key macroeconomic variables. The volatility increases even more when the zero lower bound restricts the monetary policy. In a context of LAMP, greater wage flexibility is welfare improving only for implausible initial high degrees of wage rigidity; but the gains are small. Except that extreme case, greater wage flexibility reduces welfare when even a small fraction of households are financially constrained.
In the third chapter, nominal wage rigidity in the Netherlands during the Great Recession is studied. The data used has three unique features: high-frequency, high-quality, and high coverage. Substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract was found, and also between industries, year and months. It was found that wage changes have a time and state dependency component. The response of wage changes to the time and state component is heterogeneous across the different type of contracts.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Tilburg University
Supervisors/Advisors
  • Eijffinger, Sylvester, Promotor
  • Uras, Burak, Promotor
Award date20 Nov 2018
Place of PublicationTilburg
Publisher
Print ISBNs978 90 5668 575 1
Publication statusPublished - 2018

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Wages
Nominal rigidities
Wage flexibility
Policy implications
Wage rigidity
Market participation
Asset markets
Household
Nominal wage rigidity
Wage setting
Industry
New Keynesian model
Zero lower bound
Great Recession
Welfare effects
Persistence
Labor contracts
Price setting
Business cycles
DSGE models

Cite this

Grajales Olarte, A. (2018). Essays on nominal rigidities: Identification, macrodynamic consequences and policy implications. Tilburg: CentER, Center for Economic Research.
Grajales Olarte, Anderson. / Essays on nominal rigidities : Identification, macrodynamic consequences and policy implications. Tilburg : CentER, Center for Economic Research, 2018. 153 p.
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abstract = "The dissertation aims to shed light on the identification, measurement, macrodynamic consequences and policy implications of nominal wage rigidity. In the first chapter, a New-Keynesian DSGE model with heterogeneity in price and wage setting behavior is estimated using Bayesian techniques for the United States economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. Qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, are identified. Standard New Keynesian model with only Calvo-type wage rigidity fails to achieve these features. In the second chapter, the stability and welfare effects of greater wage flexibility in an economy with limited asset market participation (LAMP) are analyzed. The results show that once LAMP is considered, greater wage flexibility increases the volatility of key macroeconomic variables. The volatility increases even more when the zero lower bound restricts the monetary policy. In a context of LAMP, greater wage flexibility is welfare improving only for implausible initial high degrees of wage rigidity; but the gains are small. Except that extreme case, greater wage flexibility reduces welfare when even a small fraction of households are financially constrained.In the third chapter, nominal wage rigidity in the Netherlands during the Great Recession is studied. The data used has three unique features: high-frequency, high-quality, and high coverage. Substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract was found, and also between industries, year and months. It was found that wage changes have a time and state dependency component. The response of wage changes to the time and state component is heterogeneous across the different type of contracts.",
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Grajales Olarte, A 2018, 'Essays on nominal rigidities: Identification, macrodynamic consequences and policy implications', Doctor of Philosophy, Tilburg University, Tilburg.

Essays on nominal rigidities : Identification, macrodynamic consequences and policy implications. / Grajales Olarte, Anderson.

Tilburg : CentER, Center for Economic Research, 2018. 153 p.

Research output: ThesisDoctoral ThesisScientific

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T2 - Identification, macrodynamic consequences and policy implications

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AB - The dissertation aims to shed light on the identification, measurement, macrodynamic consequences and policy implications of nominal wage rigidity. In the first chapter, a New-Keynesian DSGE model with heterogeneity in price and wage setting behavior is estimated using Bayesian techniques for the United States economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. Qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, are identified. Standard New Keynesian model with only Calvo-type wage rigidity fails to achieve these features. In the second chapter, the stability and welfare effects of greater wage flexibility in an economy with limited asset market participation (LAMP) are analyzed. The results show that once LAMP is considered, greater wage flexibility increases the volatility of key macroeconomic variables. The volatility increases even more when the zero lower bound restricts the monetary policy. In a context of LAMP, greater wage flexibility is welfare improving only for implausible initial high degrees of wage rigidity; but the gains are small. Except that extreme case, greater wage flexibility reduces welfare when even a small fraction of households are financially constrained.In the third chapter, nominal wage rigidity in the Netherlands during the Great Recession is studied. The data used has three unique features: high-frequency, high-quality, and high coverage. Substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract was found, and also between industries, year and months. It was found that wage changes have a time and state dependency component. The response of wage changes to the time and state component is heterogeneous across the different type of contracts.

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VL - 574

T3 - CentER Dissertation Series

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Grajales Olarte A. Essays on nominal rigidities: Identification, macrodynamic consequences and policy implications. Tilburg: CentER, Center for Economic Research, 2018. 153 p. (CentER Dissertation Series).