In an important paper, Fuhrer and Moore (1995) showed that Taylor (1980)’s staggered wage setting model does not exhibit persistence in inflation; they proposed a simple modification, in which workers cared about the real wages of other workers, which solves this problem. However, we argue...

We develop a DSGE model with firm-specific labor where firm-level wage bargaining and price setting are subject to Calvo-type staggering. This is in general an intractable problem due to complicated intertemporal dependencies between price and wage decisions. However, the problem is...

We investigate the relevance of Carroll's sticky information model of inflation expectations for four major European economies (France, Germany, Italy and the United Kingdom). In contrast to the most rational expectation models, households in the sticky information environment update their...

We investigate the optimality of monetary policy targeting rules in a macroeconomic model based on explicit micro-foundations for intrinsic persistence in inflation and real output. For the corresponding social welfare loss function to be minimized by the central bank, inertia arises...