Presentation Title: Heterogeneous Downward Nominal Wage Rigidity: Foundations of a Nonlinear Phillips Curve
(with Martin Uribe)
Abstract:
We propose a model with heterogeneous downward nominal wage rigidity for in-
dividual labor varieties. The model delivers a nonlinear wage Phillips curve that is
relatively steep at low levels of unemployment and flat at high levels of unemployment,
implying a low cost of reducing high levels of inflation. At the same time, for regular
size fluctuations in inflation, we show that the model preserves the dynamic properties
of the new-Keynesian model. The predicted nonlinear Phillips curve matches well the
pattern of wage inflation and unemployment observed in the United States over the
past 40 years. Although the equilibrium features occasionally binding constraints for
individual labor types, there are no such constraints in the aggregate making the model
amenable to perturbation analysis.
Contact Cynthia Wu for information