The Macroeconomics of Low Inflation

Brookings Papers on Economic Activity

Volumn , Issue 1, 1996, Pages 1-48

  Akerlof, George A ^a   Dickens, William T ^a   Perry, George L ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0003176637     PISSN: 00072303     EISSN: None     Source Type: Journal    
DOI: 10.2307/2534646     Document Type: Article

References (43)

1. Quoted in U.S. Congress, Joint Economic Committee, "Statement by Connie Mack on the Economic Growth and Price Stability Act," news release, September 20, 1995.
2. Tobin (1972, p. 11); Samuelson and Solow (1960, p. 182); Schultze (1959, p. 134).
3. Tobin (1972, p. 11); Samuelson and Solow (1960, p. 182); Schultze (1959, p. 134).
4. Tobin (1972, p. 11); Samuelson and Solow (1960, p. 182); Schultze (1959, p. 134).
5. Bewley and Brainard (1993); Bewley (1994).
6. Bewley and Brainard (1993); Bewley (1994).
7. Kahneman, Knetsch, and Thaler (1986, p. 731, questions 4A and 4B).
8. Shafir, Diamond, and Tversky (1994).
9. Campbell and Kamlani (1995).
10. Personal communication from Pierre Fortin, University of Quebec at Montreal, August 13, 1995.
11. Mitchell (1985); O'Brien (1989); Hanes (1993, 1996).
12. Mitchell (1985); O'Brien (1989); Hanes (1993, 1996).
13. Mitchell (1985); O'Brien (1989); Hanes (1993, 1996).
14. Card and Hyslop (1996); Lebow, Stockton, and Wascher (1995); Kahn (1995); McLaughlin (1994).
15. Card and Hyslop (1996); Lebow, Stockton, and Wascher (1995); Kahn (1995); McLaughlin (1994).
16. Card and Hyslop (1996); Lebow, Stockton, and Wascher (1995); Kahn (1995); McLaughlin (1994).
17. Card and Hyslop (1996); Lebow, Stockton, and Wascher (1995); Kahn (1995); McLaughlin (1994).
18. McLaughlin presents corrected measures of the standard deviation of wage changes, and then infers the impact of the correction for the frequency of negative wage changes, using the empirical distribution of wage changes in the PSID. However, this is inappropriate if the underlying true distribution is asymmetric, as the distribution of wage changes appears to be. For example, suppose that the true distribution of wage changes contained no negative values. If a normal measurement error was added to the true values, a large number of false negative wage changes would be recorded. Simply reducing the variance of the empirical distribution by a mean-preserving reduction in the spread equal to the variance of the measurement error, as McLaughlin does, will reduce the frequency of false negatives but will not eliminate them. It is impossible to reconstruct the true underlying distribution in this fashion. Kahn recognizes the presence of errors but does not attempt to correct for them because doing so would only strengthen her conclusions about the presence of downward rigidity.
19. Mellow and Sider (1983, p. 335, n. 6) report that "the estimated variance of the difference in log wage is 0.167." Our calculations, based on regression estimates that they present, suggest approximately this figure for the standard deviation.
20. A validation survey for the PSID shows large errors in reported income, but since the plant chosen for the survey did not pay straight time wages, the accuracy of the PSID question on hourly earnings cannot be assessed (see Duncan and Hill, 1985).
21. Shea (1996).
22. Kahn (1995, table 2, p. 17).
23. Kahn (1995, table 2, p. 17).
24. Personal communication from Harry J. Holzer, Michigan State University, East Lansing, Mich., April 20, 1995, and Holzer (1996).
25. This is the fraction of job stayers with one to two years of tenure that reports lower wages in 1992 than in 1991.
26. Hall (1988); Bils (1987).
27. Hall (1988); Bils (1987).
28. Leonard (1987); Davis, Haltiwanger, and Schuh (1996).
29. Leonard (1987); Davis, Haltiwanger, and Schuh (1996).
30. McLaughlin (1994) presents several estimates of the standard deviation of percentage real wage growth across individuals who stay on the same job. These estimates are corrected for measurement error, and none is less than 9.5 percentage points.
31. See Dickens (1994) for a discussion of the theoretical and empirical evidence on whether labor demand responds to negotiated changes in wages; and Dickens (1986) for a discussion of the employment effects of wage changes in firms where bargaining is implicit or the threat of collective action forces them to pay higher wages.
32. See Dickens (1994) for a discussion of the theoretical and empirical evidence on whether labor demand responds to negotiated changes in wages; and Dickens (1986) for a discussion of the employment effects of wage changes in firms where bargaining is implicit or the threat of collective action forces them to pay higher wages.
33. t, and that s, the value of leisure, is also proportional to labor productivity.
34. w - the wage will be given by the bargaining equation (equation 3).
35. We assume that s and profits rise with productivity, and therefore, productivity affects the notional real wage in a multiplicative fashion.
36. As long as s, the value of leisure, is less than the real wage, (β - 1)/β, SS will slope upward.
37. The churning of employment between firms is a mechanism by which nominal rigidity is overcome in the economy, and by embodying this feature we capture this mechanism in the simulation. Constrained firms will tend to shrink, and workers who lose employment at high wage constrained firms may find reemployment at low wage unconstrained firms.
38. We checked a number of these cases to be sure that the failure to find acceptable parameter values for so many cases is due to their nonexistence and does not represent a failure of our search algorithm. Doing a grid search by hand, we were unable to find values of our instrumental parameters that allowed our simulation to hit the three calibration targets. The failure is due to the wide range of values that we allow the randomly chosen parameters to take. In experiments where the ranges are sharply restricted, the search algorithm is able to calibrate the simulation in the majority of cases.
39. Gordon (1994).
40. Our treatment of productivity growth, oil shocks, and wage and price controls is explained in appendix A.
41. Schultze (1981); Gordon (1981).
42. Schultze (1981); Gordon (1981).
43. U.S. Department of Commerce (1966, series B72, pp. 202-03, and series A164, pp. 190-91).