Optimal Monetary Policy under Rigid Wages and Decreasing Returns
Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg
New Keynesian model with search and matching labor market frictions, real wage rigidity, and decreasing returns to scale in production. Features Rotemberg price adjustment costs, large firms with multiple employees, and a wage rule rigid with r
retail firms: perfect competition with CES aggregation; wholesale firms: monopolistic competition with search frictions and Rotemberg price adjustment costs
Table 4 p.18
Ramsey optimal policy with rigid wages and decreasing returns to scale - standard deviation of inflation relative to productivity
Main result of the paper combining rigid wages with decreasing returns under Ramsey policy