Working Paper

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


  • Ascari
  • G.
  • Merkl
  • C.
Publication Date

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.


JEL Classification
E31, E52

Key Words

  • Disin‡flation
  • real rigidities
  • sticky prices