TY  - JOUR
AU  - Benigno,Pierpaolo
AU  - Ricci,Luca Antonio
TI  - The Inflation-Output Trade-off with Downward Wage Rigidities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15762
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15762
L1  - http://www.nber.org/papers/w15762.pdf
N1  - Author contact info:
Pierpaolo Benigno
Dipartimento di Economia e Finanza
Luiss Guido Carli
Viale Romania 32
00197 Rome
ITALY
Tel: 39-0685225-552
E-Mail: pbenigno@luiss.it

Luca A. Ricci
International Monetary Fund
Research Department
700 19th Street, N.W.
Washington, D.C. 20431
E-Mail: lricci@imf.org
AB  - In the presence of downward nominal wage rigidities, wage setters take into account the future 
consequences of their current wage choices, when facing both idiosyncratic and aggregate shocks. We derive a closed-form solution for a long-run Phillips curve which relates average output gap to average wage inflation: it is virtually vertical at high inflation and flattens at low inflation. Macroeconomic volatility shifts the curve outward and reduces output. The results imply that stabilization policies play an important role, and that optimal inflation may be positive and differ across countries with different macroeconomic volatility.
ER  -