Wolfgang Lechthaler (Kiel Institute)
We build a dynamic model of two countries, two sectors and two factors with firm heterogeneity and price rigidity to analyze the short-run and long-run consequences of trade liberalization for nominal and real wages and wage inequality. We find that the development of nominal and real wages can diverge substantially with trade liberalization potentially leading to increases in real wages and decreases in nominal wages for unskilled workers. The conduct of monetary policy plays an important role for these developments.
Wolfgang Lechthaler (Kiel Institute) — Mariya Mileva (California State University, Long Beach)