DP11568 The New Keynesian Wage Phillips Curve: Calvo vs. Rotemberg

Author(s): Benjamin Born, Johannes Pfeifer
Publication Date: October 2016
Keyword(s): Calvo, Rotemberg, Wage Phillips Curve, Wage stickiness
JEL(s): E10, E30
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11568

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.