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...ive DNWR found in micro studies, combined with monetary policy aiming for low rates of inflation, make Tobin’s contention that this combination leads to greater wage pressure and higher unemployment (=-=Tobin, 1972-=-) again of great policy relevance. However, when it comes to identifying the aggregate effects of dnwr, the results are more disputed. Fehr and Gotte (2005) show that dnwr is associated with higher un...

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...r is associated with higher unemployment among Swiss cantons. Moreover, several papers have found empirical support for Tobin’s contention that low inflation may lead to higher unemployment (see e.g. =-=Akerlof et al., 1996-=-, Karanassou et al., 2003 and Dickens et al., 2005), yet other economists are skeptical towards the reliability of these findings (e.g. Gordon, 1996, Camba-Mendez et al., 2003, Mankiw, 1996 and Svenss...

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...cisions, in particular as to hirings. This is reflected in the dominating explanations of oecd unemployment, where wage setting and labour market institutions play a key role (Layard et al., 1991 and =-=Nickell et al., 2005-=-). On this basis, one would expect that increased wage pressure due to binding dnwr would lead to higher unemployment. A second reason is that several recent contributions have argued that wage rigidi...

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...distribution in high inflation years, when dnwr is less likely to be binding. The lsw statistic, suggested by Lebow et al. (1995), requires that the notional distribution is symmetric. The Kahn test (=-=Kahn, 1997-=-) allows for asymmetry of the notional wage change distribution, as long as the notional distribution is invariant to inflation, i.e. the only effect of inflation on the distribution of wage changes c...

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...ect firms’ employment decisions, in particular as to hirings. This is reflected in the dominating explanations of oecd unemployment, where wage setting and labour market institutions play a key role (=-=Layard et al., 1991-=- and Nickell et al., 2005). On this basis, one would expect that increased wage pressure due to binding dnwr would lead to higher unemployment. A second reason is that several recent contributions hav...

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...higher unemployment (see e.g. Akerlof et al., 1996, Karanassou et al., 2003 and Dickens et al., 2005), yet other economists are skeptical towards the reliability of these findings (e.g. Gordon, 1996, =-=Camba-Mendez et al., 2003-=-, Mankiw, 1996 and Svensson, 2001). In ecb’s recent evaluation of its monetary policy framework, it is concluded that ‘. . . the importance in practice of downward nominal rigidities is highly uncerta...

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...n may lead to higher unemployment (see e.g. Akerlof et al., 1996, Karanassou et al., 2003 and Dickens et al., 2005), yet other economists are skeptical towards the reliability of these findings (e.g. =-=Gordon, 1996-=-, Camba-Mendez et al., 2003, Mankiw, 1996 and Svensson, 2001). In ecb’s recent evaluation of its monetary policy framework, it is concluded that ‘. . . the importance in practice of downward nominal r...

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...g. Akerlof et al., 1996, Karanassou et al., 2003 and Dickens et al., 2005), yet other economists are skeptical towards the reliability of these findings (e.g. Gordon, 1996, Camba-Mendez et al., 2003, =-=Mankiw, 1996-=- and Svensson, 2001). In ecb’s recent evaluation of its monetary policy framework, it is concluded that ‘. . . the importance in practice of downward nominal rigidities is highly uncertain and the emp...

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...islation, wage setting 1 Introduction Recent micro studies have found considerable downward nominal wage rigidity (DNWR) for job stayers in oecd countries. The International Wage Flexibility Project (=-=Dickens et al., 2005-=-) find that for all the 16 countries that are studied, DNWR prevents wage cuts from taking ∗ We wish to thank Lars Holden and Tore Schweder for invaluable help in the formulation of the statistical me...

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...icy framework, it is concluded that ‘. . . the importance in practice of downward nominal rigidities is highly uncertain and the empirical evidence is not conclusive, particularly for the euro area’ (=-=ecb, 2003-=-, page 14). One possible explanation for the disputable aggregate evidence of dnwr, in spite of strong microeconomic evidence, may be that the dnwr at the individual level is undone by firm behaviour ...

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..., 1996, Karanassou et al., 2003 and Dickens et al., 2005), yet other economists are skeptical towards the reliability of these findings (e.g. Gordon, 1996, Camba-Mendez et al., 2003, Mankiw, 1996 and =-=Svensson, 2001-=-). In ecb’s recent evaluation of its monetary policy framework, it is concluded that ‘. . . the importance in practice of downward nominal rigidities is highly uncertain and the empirical evidence is ...