Publication

This paper analyzes the cost of disinflation under real wage rigidities in a micro- founded New Keynesian model. Unlike Blanchard and Gali (2007) who carried out a similar analysis in a linearized framework, the authors take non-linearities into account. They show that the results change dramatically, both qualitatively and quantitatively, for the steady states and for the dynamic adjustment paths. They argue that, in particular, a disinflation implies a prolonged slump without any need for real wage rigidities.