- ` + wtNte (s) `0 ≥ 0 Nominal wages are set by unions, subject to Calvo wage rigidity. The optimization problem of unions implies a standard Phillips curve for wages45, which can be written to first order (see 43The model and main results in this appendix previously appeared in a June 2018 SED presentation, “Forward Guidance is More Powerful Than You Think,†where we pointed out that the MPC-investment interaction, in the absence of other frictions like informational rigidities, could aggravate the forward guidance puzzle. Here we make the same point about amplification for standard AR(1) monetary policy shocks. 44This also avoids the (counterfactual) very high countercyclicality of profits in a flexible-wage, sticky-price model. 45This is included only for completeness: given the exogenous monetary policy for the real interest rate rt and the lack of any other nominal rigidity, the slope of this Phillips curve is irrelevant for real equilibrium outcomes.
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