RBC models with search unemployment and wage renegotiation generate too much wage volatility and too stable unemployment rate. Shimer (2004) shows that it is possible to reproduce a volatility of unemployment similar to that observed in actual economies by imposing full real wage rigidity. We use a similar model but with Calvo wage contracts. The models with full wage flexibility or full wage rigidity are obtained as particular cases. We show that a contract length of about six quarters fits best the observed cyclical properties of wages and unemployment. Keywords: search unemployment, Calvo wage, cyclical properties. JEL classification: E24, E32, J30, J41.
nr 068 - Calvo Wages in a Search Unemployment Model
- DNB Working Papers
Date 13 December 2005