NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Roberto Billi

Sveriges Riksbank
Sweden

E-Mail: roberto.billi@riksbank.se
Institutional Affiliation: Sveriges Riksbank

NBER Working Papers and Publications

June 2020Gains from wage Flexibility and the Zero Lower Bound
with Jordi GalĂ­: w27386
We analyze the welfare impact of greater wage flexibility in the presence of an occasionally binding zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.
 
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