Working Paper

Real Wage Rigidities and the Cost of Disinflations: A Comment on Blanchard and Galí

Kiel Working Papers, 1312

This paper analyzes the cost of disin‡ation under real wage rigidities in a micro-

founded New Keynesian model. Unlike Blanchard and Galí (2007) who carried out a

similar analysis in a linearized framework, we take non-linearities into account. We

show that the results change dramatically, both qualitatively and quantitatively, for

the steady states and for the dynamic adjustment paths. In particular, a disin‡ation

implies a prolonged slump without any need for real wage rigidities.

Authors

Guido Ascari
Christian Merkl

Info

Publication Date
JEL Classification
E31, E52