Nominal Wage Adjustment, Demand Shortage And Economic Policy

ISER Discussion Paper No. 760

38 Pages Posted: 16 Nov 2009

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Junichiro Ishida

Osaka University - Institute of Social and Economic Research

Institute of Social and Economic Research

Date Written: November 15, 2009

Abstract

We formulate nominal wage adjustment by incorporating various concepts of fairness. By applying it into a continuous-time money-in-utility model we examine macroeconomic dynamics with and without a liquidity trap and obtain the condition for persistent unemployment, and that for temporary unemployment, to occur. These conditions turn out to be critical, since policy implications significantly differ between the two cases. A monetary expansion raises private consumption under temporary unemployment but does not under persistent unemployment. A fiscal expansion may or may not increase short-run private consumption but crowds out long-run consumption under temporary unemployment. Under persistent unemployment, however, it always increases private consumption

Keywords: Wage adjustment, Fairness, Phillips curve, Demand shortage, Persistent Stagnation

JEL Classification: E52, E31

Suggested Citation

Ono, Yoshiyasu and Ishida, Junichiro and Economic Research, Institute of Social and, Nominal Wage Adjustment, Demand Shortage And Economic Policy (November 15, 2009). ISER Discussion Paper No. 760. Available at SSRN: https://ssrn.com/abstract=1506722 or http://dx.doi.org/10.2139/ssrn.1506722

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Junichiro Ishida

Osaka University - Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

No contact information is available for Institute of Social and Economic Research

Register to save articles to
your library

Register

Paper statistics

Downloads
37
Abstract Views
353
PlumX Metrics