Essays on labor market rigidities, inflation persistence and monetary policy uncertainty

This dissertation studies the role played by labor market rigidities and uncertainty about the behavior of the central bank in explaining the propagation of monetary and real shocks to output and inflation. In the first essay, I examine the consequences of introducing real wage rigidities in a baseline sticky price New Keynesian model. In a calibrated exercise, I show that by introducing real wage rigidities, it becomes possible to explain the cyclical behavior of inflation and real wages with the cycle, as well as match the persistent response of output and inflation to exogenous shocks. However, real wage rigidities do not significantly affect the response of real variables to nominal shocks. From a welfare point of view, if real and nominal shocks are considered, it is optimal to introduce some degree of real wage stickiness.; In the second essay, which is joint work with Juan F. Rubio-Ramirez, we explore the capability of the model introduced in the first essay to fit the data with reasonable durations of price and wage contracts. We implement a Bayesian approach for parameter estimation and to perform a comparison with other models that incorporate only nominal rigidities. We obtain that, on average, prices are fixed for three quarters, nominal wages for five quarters, and half of the wage setters follow a real wage indexing rule of thumb. Second, when we remove real wage rigidites, the estimated parameter on price duration increases. Third, we find little evidence of backward looking behavior in price inflation. Finally, our model explains data best.; In the third essay, I study the dynamics of a sticky price model when the private sector does not have perfect knowledge about the monetary policy rule. The private sector learns the coefficients of the new Taylor rule using available data and discounted least squares. When the private sector underestimates the policy rule, the central bank needs to act more aggressively, because inflation and output are too volatile. As a consequence, the output costs of bringing inflation back to target may be higher than when a tough monetary policy rule is known with certainty.