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Author:Holden, Steinar 

Conference Paper
The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project
Inflation can ?grease? the wheels of economic adjustment in the labor market by relieving the constraint imposed by downward nominal wage rigidity, but not if there is also substantial downward real wage rigidity. At the same time, inflation can throw ?sand? in the wheels of economic adjustment by degrading the value of price signals. A number of recent studies suggest that wage rigidity is much more important for business cycles and monetary policy than previously believed (see Erceg, Henderson and Levin, 2000, Smets and Wouters, 2003, and Hall, 2005). Thus, our results on how wage rigidity and other labor market imperfections vary between countries and how they are affected by the rate of inflation should be of considerable value in formulating monetary policy and conducting related research.
AUTHORS: Holden, Steinar; Schweitzer, Mark E.; Dickens, William T.; Turunen, Jarkko; Ward, Melanie; Goette, Lorenz; Groshen, Erica L.; Messina, Julian
DATE: 2006

Working Paper
Behavioral Economics and Macroeconomic Models
Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy--for example, the counterfactual absence of inertia in the standard New Keynesian model of economic fluctuations. We survey efforts to use behavioral economics to improve some of the underpinnings of the New Keynesian model--specifically, consumption, the formation of expectations and determination of wages and employment that underlie aggregate supply, and the possibility of multiple equilibria and asset price bubbles. We also discuss more broadly the advantages and disadvantages of using behavioral economics features in macroeconomic models.
AUTHORS: Holden, Steinar; Driscoll, John C.
DATE: 2014-06-04

Working Paper
Coordination, fair treatment and inflation persistence
Most wage-contracting models with rational expectations fail to replicate the persistence in inflation observed in the data. We argue that coordination problems and multiple equilibria are the keys to explaining inflation persistence. We develop a wage-contracting model in which workers are concerned about being treated fairly. This model generates a continuum of equilibria (consistent with a range for the rate of unemployment), where workers want to match the wage set by other workers. If workers' expectations are based on the past behavior of wage growth, these beliefs will be self-fulfilling and thus rational. Based on quarterly U.S. data over the period 1955-2000, we find evidence that inflation is more persistent between unemployment rates of 4.7 and 6.5 percent, than outside these bounds, as predicted by our model.
AUTHORS: Driscoll, John C.; Holden, Steinar
DATE: 2003

Working Paper
Inflation persistence and relative contracting
Macroeconomists have for some time been aware that the New Keynesian Phillips curve, though highly popular in the literature, cannot explain the persistence observed in actual inflation. We argue that one of the more prominent alternative formulations, the Fuhrer and Moore (1995) relative contracting model, is highly problematic. Fuhrer and Moore's 1995 formulation generates inflation persistence, but this is a consequence of their assuming that workers care about the past real wages of other workers. Making the more reasonable assumption that workers care about the current real wages of other workers, one obtains the standard formulation with no inflation persistence.
AUTHORS: Driscoll, John C.; Holden, Steinar
DATE: 2003

Report
How wages change: micro evidence from the international wage flexibility project
How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals' earnings in thirty-one different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries.
AUTHORS: Dickens, William T.; Goette, Lorenz; Groshen, Erica L.; Holden, Steinar; Messina, Julian; Schweitzer, Mark E.; Turunen, Jarkko; Ward, Melanie
DATE: 2007

Working Paper
How strong is the case for downward real wage rigidity?
This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973-1999, using data for hourly nominal earnings at the industry level. Based on a nonparametric statistical method, which allows for country- and year-specific variation in both the median and the dispersion of industry wage changes, we find evidence of some DRWR in OECD countries overall, as well as for specific geographical regions and time periods. There is some evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal wage rigidity than for downward real wage rigidity.
AUTHORS: Holden, Steinar; Wulfsberg, Fredrik
DATE: 2007

Working Paper
How wages change: micro evidence from the International Wage Flexibility Project
How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals? earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries.
AUTHORS: Messina, Julian; Ward, Melanie; Schweitzer, Mark E.; Holden, Steinar; Dickens, William T.; Goette, Lorenz; Turunen, Jarkko; Groshen, Erica L.
DATE: 2006

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