Working Paper: CEPR ID: DP5658
Authors: Christian Merkl; Dennis J. Snower
Abstract: This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are highly complementary in generating monetary persistence. We do so by proposing the new measure "quantitative persistence," after discussing weaknesses of the "contract multiplier," which is generally used to compare persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to explore their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labour and product markets. We show that the conventional wisdom that wage staggering can generate more persistence than price staggering does not necessarily hold.
Keywords: monetary persistence; monetary policy; price staggering; wage staggering
JEL Codes: E40; E50; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage staggering + price staggering (J31) | monetary persistence (E41) |
| wage staggering (J31) | monetary persistence (E41) |
| price staggering (D49) | monetary persistence (E41) |
| relative competitiveness of labor market + relative competitiveness of product market (F16) | degree of monetary persistence (E41) |
| product market competitiveness > labor market competitiveness (L19) | price staggering > wage staggering in monetary persistence (C54) |
| wage staggering + price staggering (J31) | complementarity measure > 1 (D10) |