Objective The New Keynesian (NK) model has emerged in recent years as the workhorse for monetary policy analysis. The first part of the proposed project is motivated by two shortcomings of that framework: (i) the lack of an explicit analysis of unemployment and its potential role in the design of policy, (ii) the limited empirical support for the model s wage-setting block. One of the objectives of the proposed project is the assessment of the empirical relevance of the specification of the wage-setting bock found in standard versions of the NK model, with a special focus on their implied wage-unemployment dynamics. As part of my project, I will show how the standard NK model with staggered wage setting implies a relationship between wage inflation and unemployment that fails to capture important features of the data. I also plan to develop and study an extension of the NK model that incorporates in a tractable way real wage rigidities (coexisting with nominal rigidities), with the objective of (i) assessing their relative role in explaining the observed patterns of wages and unemployment, (ii) analyzing their implications for the design of monetary policy. The second part of the project is motivated by the significant changes in the co-movements among some key macro variables that have accompanied the recent period of low macroeconomic volatility (the so-called Great Moderation). One objective of the proposed research is to understand the role that structural change in the labor market may have played as a source of those changes. In particular, I plan to analyze the causes of the vanishing pro-cyclicality of labor productivity and their potential causes, including a more subdued use of labor hoarding by firms, possibly as a result of lower hiring/firing costs. In addition, I plan to study the consequences that such structural changes may have had on wage setting, and their ability to account for the apparent increase in wage flexibility during the recent period. Fields of science social scienceseconomics and businesseconomicsmonetary and financessocial scienceseconomics and businesseconomicsproduction economicsproductivitysocial scienceseconomics and businessbusiness and managementemploymentsocial sciencessociologysocial issuesunemployment Keywords Great Moderation New Keynesian model labor market frictions nominal rigidities optimal monetary policy design real wage rigidities Programme(s) FP7-IDEAS-ERC - Specific programme: "Ideas" implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013) Topic(s) ERC-AG-SH1 - ERC Advanced Grant - Individuals, institutions and markets Call for proposal ERC-2008-AdG See other projects for this call Funding Scheme ERC-AG - ERC Advanced Grant Host institution Centre de Recerca en Economia Internacional (CREI) EU contribution € 600 000,00 Address RAMON TRIAS FARGAS 25/27 08005 Barcelona Spain See on map Region Este Cataluña Barcelona Activity type Research Organisations Principal investigator Jordi Galí (Dr.) Administrative Contact Anna Ricart (Ms.) Links Contact the organisation Opens in new window Website Opens in new window Total cost No data Beneficiaries (1) Sort alphabetically Sort by EU Contribution Expand all Collapse all Centre de Recerca en Economia Internacional (CREI) Spain EU contribution € 600 000,00 Address RAMON TRIAS FARGAS 25/27 08005 Barcelona See on map Region Este Cataluña Barcelona Activity type Research Organisations Principal investigator Jordi Galí (Dr.) Administrative Contact Anna Ricart (Ms.) Links Contact the organisation Opens in new window Website Opens in new window Total cost No data
