We incorporate inequity aversion into an otherwise standard New Keynesian dynamic equilibrium model with Calvo wage contracts and positive inflation. Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their...

This paper integrate microfoundations of wage staggering into a simple dynamic general equilibrium model with rational expectations. In this context we show that a permanent increase in money growth leads to a permanent increase in the rate of inflation and a permanent reduction in the level of...

This paper has two aims. First, it provides simple theoretical models that highlight two channels whereby monetary shocks have permanent real effects and the interactions between these channels. Second, it presents an empirical dynamic model, covering a panel of EU countries, and derives the...