Economics Commons^™

Revisiting Staggered Wages To Consider Discounting, Patricia Bonini, Sergio Da Silva

Sergio Da Silva

In the literature of staggered wages, the discount factor is neglected in the workers’ loss function. Yet, discounting is to be viewed as an extra piece of microfoundation with implications for discretionary monetary policy. We revisit the issue and show that discounting in the model of staggered wages actually lowers the time-consistent steady inflation.