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Title: The New Keynesian Wage Phillips Curve: Calvo vs. Rotemberg

Author(s): Benjamin Born and Johannes Pfeifer

Publication Date: October 2016

Keyword(s): Calvo, Rotemberg, Wage Phillips Curve and Wage stickiness

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We systematically evaluate how to translate a Calvo wage duration into an implied Rotemberg wage adjustment cost parameter in medium-scale New Keynesian DSGE models by making use of the well-known equivalence of the two setups at first order. We consider a wide range of felicity functions and show that the assumed household insurance scheme and the presence of labor taxation greatly matter for this mapping, giving rise to differences of up to one order of magnitude. Our results account for the inclusion of wage indexing, habit formation in consumption, and the presence of fixed costs in production.

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Bibliographic Reference

Born, B and Pfeifer, J. 2016. 'The New Keynesian Wage Phillips Curve: Calvo vs. Rotemberg'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11568