Discussion Paper

No. 2014-32 | July 23, 2014
Fairness and the Disinflation Puzzle


Following Driscoll and Holden (Fairness and Inflation Persistence, 2004), I model forward-looking workers who consider it unfair if a wage adjustment fails to match past inflation. However, the present paper proposes a much larger effect by using the job finding rate as the measure of workers’ opportunities outside the firm rather than the unemployment rate, develops a dynamic model with imperfect monitoring, and simulates a credible gradual disinflation with a large sacrifice ratio. It also uses the model to discuss real adverse shocks, the manner in which indexation is used in New Keynesian models, and the use of sticky information to explain disinflation costs.

Data Set

JEL Classification:

D03, E31, E32, E42, E50, J64


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Cite As

Andre Lunardelli (2014). Fairness and the Disinflation Puzzle. Economics Discussion Papers, No 2014-32, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-32

Comments and Questions

Anonymous - Referee Report 1
July 31, 2014 - 09:21

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Andre Lunardelli - Reply to Referee Report 1
August 11, 2014 - 09:43

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Anonymous - Referee Report 2
September 02, 2014 - 08:44

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Andre Lunardelli - Reply to Referee Report 2
September 17, 2014 - 10:18

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Andre Lunardelli - New Version of the Model
September 17, 2014 - 10:21

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