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This paper documents nominal wage stickiness using an original quarterly firm-level dataset. We use the ACEMO survey, which reports the base wage for up to 12 employee categories in French firms over the period 1998 to 2005, and obtain the following main results. First, the quarterly frequency of wage change is around 35 percent. Second, there is some downward rigidity in the base wage. Third, wage changes are mainly synchronized within firms but to a large extent staggered across firms. Fourth, standard Calvo or Taylor schemes fail to match micro wage adjustment patterns, but fixed duration ’Taylor-like’wage contracts are observed for a minority of …rms. Based on a two-thresholds sample selection model, we perform an econometric analysis of wage changes. Our results suggest that the timing of wage adjustments is not state-dependent, and are consistent with existence of predetermined of wage changes. They also suggest that both backward- and forward-looking behavior is relevant in wage setting.

In 2006 all ECB publications will feature a motif taken from the €5 banknote. This paper can be downloaded without charge from

In this paper, the interaction between inflation and monetary policy rules is analysed within the framework of a dynamic general equilibrium model derived from optimising behaviour and rational expectations. Using model simulations, it is illustrated that the control of monetary policy over the inflation process is strongly dependent on the role of forward looking expectations in the price and wage setting process and on the credibility of monetary policy in the expectation formation process of the private sector. Furthermore, the central bank should take into account a wide variety of indicators in making monetary policy decisions in order to approach the optimal monetary policy rule as closely as possible. 2 NBB WORKING PAPER No.1 - MARCH 2000 NBB WORKING PAPER No.1 - MARCH 2000 3 TABLE OF CONTENTS: 1. INTRODUCTION .............................................................................................................................1 2. A DYNAMIC GENERAL EQUILIBRIUM MODEL ...

In 2006 all ECB publications will feature a motif taken from the €5 banknote. This paper can be downloaded without charge from

Abstract not found

A persistent criticism of general equilibrium models of monetary policy which incorporate nominal inertia in the form of the New Keynesian Phillips Curve (NKPC) is that they fail to capture the extent of inflation inertia in the data. In this paper we derive a general equilibrium model based on optimising behaviour, but which also implies a data consistent NKPC. Specifically our model accounts for nominal inertia in both price and wage setting as well for habits in consumption. Using US and European data from 1970 to 1998 our parameter estimates reveal that (i) there is relatively more inertia in price and wage-setting in Europe; (ii) the extent of backward-looking behaviour in price setting is statistically significant in both economies, but backward-looking wage-setting is only present in Europe; and (iii) similar habits effects are present in both European and US consumption. Finally we simulate the effects of monetary policy and find that our parameter estimates imply significant differences in the responses to monetary policy between the two economies.

Luis Vega, three anonymous referees and especially Oreste Tristani for helpful comments and suggestions. The views expressed are solely our own and do not necessarily reflect those of the European Central Bank. “The man of system (…) is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely in all its parts without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a motion principle of its own, altogether different from what the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”

oPtimal monetary Policy in a neW keyneSian model

Abstract not found