Log-linearization with price and wage markup shocks

General DSGE Modeling
1

Hello everyone,

This is not a direct question about Dynare, but perhaps someone can still help me. I am working on a model with price and wage mark-up shocks under Calvo pricing, and I want to derive the log-linearized price and wage Phillips curves. Unfortunately, I am having trouble understanding how the log-linearization of the FOCs works when the mark-up is not constant but time-varying. Does anyone know of a good source where the log-linearization for this case is explained in more detail?

2

Hello Tim2

For time-varying price markup in the goods market reviewing section 3.1 of Corbo and Bourrousse (2020) might be helpful

3.1 Production of domestic homogeneous goods

And for time-varying wage markup, the following sections may also be helpful

4.6 Wage setting
4.7.5 Scaling of the household’s wage setting
4.8.5 Log-linearization of the household’s wage setting

Technical Appendix to “MAJA: A two-region DSGE model for Sweden and its main trading partners”

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