Maurice Tutor

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    Oct-2001 - Nov-2016

Category > Management Posted 15 Jan 2018 My Price 9.00

variance of employment

Indexation. (This problem follows Ball, 1988.) Suppose production at firm i is given by

 

 Thus in logs,

 

 Prices are flexible; thus (setting the constant term to 0 for simplicity)

 

 Aggregating the output and price equations yields

 

 Wages are partially indexed to prices: w = θp, where 0 ≤ θ ≤ 1. Finally, aggregate demand is given by y = m − p. s and m are independent, mean-zero random variables with variances Vs and Vm.

 

(a) What are p,y,l, and was functions of m and s and the parameters α and θ? How does indexation affect the response of employment to monetary shocks? How does it affect the response to supply shocks?

 

(b) What value of θ minimizes the variance of employment?

 

(c) Suppose the demand for a single firm’s output is  Suppose all firms other than firm i index their wages by w = θp as before, but that firm i indexes its wage by wi = θip. Firm i continues to set its  price as  The production function and the pricing equation then imply that

 

 

 

 


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Maurice Tutor
(5)
Status NEW Posted 15 Jan 2018 09:01 PM My Price 9.00

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