Summary of comment: Rotemberg’s paper is a very interesting and thoughtful work that will certainly generate a large amount of follow-up research. It develops a dynamic general equilibrium (DGE) model with search and matching frictions and period-by-period Nash bargaining that explains the modest elasticity of wages to employment observed in U.S. data when changes in market power are assumed to be driving economic fluctuations. There are two possible ways to see this paper’s main contribution. One can see it as providing evidence that variations in market power have some advantage relative to technology shocks as a source of fluctuations in employment. A different line of interpretation is that this paper offers a solution to the Shimer’s (2005) critique of the baseline Mortensen and Pissarides (1994, MP) model. While the paper is mainly presented along the first line of interpretation, most of my discussion follows the second one. Thus, after briefly reviewing Shimer’s critique and the subsequent debate, I go over the solution offered by Rotemberg and clarify which new mechanisms are at work. I then discuss a few open questions and conclude.

Comment on 'Cyclical wages in a search-and-bargaining model with large firms' by Julio Rotemberg

Trigari, Antonella
2008

Abstract

Summary of comment: Rotemberg’s paper is a very interesting and thoughtful work that will certainly generate a large amount of follow-up research. It develops a dynamic general equilibrium (DGE) model with search and matching frictions and period-by-period Nash bargaining that explains the modest elasticity of wages to employment observed in U.S. data when changes in market power are assumed to be driving economic fluctuations. There are two possible ways to see this paper’s main contribution. One can see it as providing evidence that variations in market power have some advantage relative to technology shocks as a source of fluctuations in employment. A different line of interpretation is that this paper offers a solution to the Shimer’s (2005) critique of the baseline Mortensen and Pissarides (1994, MP) model. While the paper is mainly presented along the first line of interpretation, most of my discussion follows the second one. Thus, after briefly reviewing Shimer’s critique and the subsequent debate, I go over the solution offered by Rotemberg and clarify which new mechanisms are at work. I then discuss a few open questions and conclude.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/1249791
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