Diego Rodriguez-Palenzuela

Assessment Criteria for Output Gap Estimates

This paper assesses the statistical reliability of different measures of the output gap for the Euro-11 area and the US using output, inflation and unemployment systems. In order to assess the reliability of an output gap estimate two criteria are adopted. Firstly, the estimate should have forecasting power over inflation. Secondly, the ex post statistical revisions of the output gap should not differ significantly from previously computed measures. As an additional check on reliability, we find out whether the estimate of the output gap is positively correlated with standard measures of capacity utilization. We find that under our multivariate specification, unobservable components (UC) type models of the output gap show temporal consistency between sequential and final estimates and are consistent with known cyclical indicators. On the other hand, our UC models for the output gap have limited forecasting power for inflation, since they underperform an arbitrary autoregressive model. JEL Classification: C32, E32, E37

Ex post Bargaining, Labor Coordination and Wage Formation at the Firm Level

We lay out a model of wage bargaining with two leading features: bargaining is ex post to relevant investments, and there is individual bargaining in firms without a Union. We compare individual ex post bargaining to coordinated ex post bargaining, and we analyze the effects of wage formation. As opposed to ex ante bargaining models, the costs of destroying the employment relationship play a crucial role in determining wages. High firing costs in particular yield a rent for employees. Our theory points to an employer size-wage effect that is independent of the production function and market power. We derive a simple least squares specification from the theoretical model that allows us to estimate components of the wage premium from coordination. We reject the hypothesis that labor coordination does not alter the extensive form of the bargaining game. Labor coordination substantially increases bargaining power but decreases labors ability to pose costly threats to the firm.