The Department of Economics invites you to a Macro, Risk and Sustainability Seminar with Guido Ascari, University of Pavia & De Nederlandsche Bank.
We study monetary policy in a nonlinear New Keynesian model with state-dependent price- and wage-adjustment frequencies. The extensive margin of nominal adjustment makes shock propagation sign-, size-, and state-dependent. Inflationary shocks generally increase firms' incentives to reprice, whereas wage reoptimization responds only when shocks sufficiently affect desired real wages and labor-market conditions. Estimating the model on euro area data from 1999Q1 to 2024Q4, we find a pronounced price-wage asymmetry. During the 2021--2022 surge, price adjustment increased sharply, while wage inflation mainly reflected delayed real-wage catch-up. Consequently, monetary policy could reduce inflation at lower output cost.