Mark Gertler Luca Sala Antonella Trigari An Estimated

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Mark Gertler, Luca Sala, Antonella Trigari, “An Estimated Monetary DSGE Model with Nominal Wage

Mark Gertler, Luca Sala, Antonella Trigari, “An Estimated Monetary DSGE Model with Nominal Wage Bargaining” Comments by Espen R. Moen

About the paper • Elaborates on a model by Gertler and Trigari that introduces

About the paper • Elaborates on a model by Gertler and Trigari that introduces search frictions in a model with Calvo pricing • Structurally estimates the model • Relevant for understanding the Shimer puzzle – Hard to reconcile the standard search- and matching model with business cycle facts

Structure of model • DSGE model – Representative agents • Habit formation – Two-layered

Structure of model • DSGE model – Representative agents • Habit formation – Two-layered production sector • Manufacturing firms: labor and capital inputs, constant returns to scale • Endogenous capital utuilization – Diamond-Mortensen-Pissarides search model – Calvo pricing in retail firms, Calvo wage setting in manufacturing firms – DMP –style search model of the labor market • Wage bargaining • Partly indexed wage contracts

• Staggered wages complicates search model – Firms are heterogeneous, wages differ –

• Staggered wages complicates search model – Firms are heterogeneous, wages differ – More difficult to calculate the value of search to workers – All jobs are accepted • The model is structurally estimated (which data set? ) • Some important parameters are assumed, while others are estimated (for instance the unemployment income)

Findings • Replacement ratio: 0, 75 – Lower than Hagerdorn and Manovskii, but higher

Findings • Replacement ratio: 0, 75 – Lower than Hagerdorn and Manovskii, but higher than Shimer • Bargaining power of workers: 0, 89 – Higher than usual – Inefficient • Wage rigidity improves the fit of the model

Comments • Complex model – Hard to get intuition for the results – What

Comments • Complex model – Hard to get intuition for the results – What are the separate effects of each extension relative to the standard DMPmodel? • Interesting to see partial effect of sticky wages on the dynamic properties of the model

Theory issues • Sticky wages for new hires? – Refer to Menzio and Moen,

Theory issues • Sticky wages for new hires? – Refer to Menzio and Moen, but this is not fully appropriate • Degree of indexation – probably a choice variable • Wage bargaining – Complicated, as future hirings influence the bargaining game – Shocks to the worker’s bargaining power- may give rise to relatively big effects on current wages • Why not go for directed search and competitive search equilibrium? • Some missing references

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