Superneutrality Of Money in Staggered Wage-setting Models

Staggered wage setting is introduced in a dynamic general equilibrium monetary model and the issue of superneutrality of money is then addressed. This paper demonstrates that in an optimising framework a mild permanent change in the rate of growth of money could have substantial effects on the steady state aggregate level of output and welfare. Previous works fail to reproduce these results because they consider restrictively simple utility and production functions. The model exhibits high costs of inflation and provides a rationale for the pursuit of price stability observed in western countries. Therefore, in the presence of staggered adjustment, superneutrality of money proves to be a key issue, which should be taken into account in any economic model with staggered adjustment.