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b. The Calvo model applied to wages would predict that roughly the same fraction of people would experience near 0 changes in wages over time
b. The Calvo model applied to wages would predict that roughly the same fraction of people would experience near 0 changes in wages over time as some would be unlucky and cannot renegotiate their wages. The plots below show histograms of the distribution of wage changes in 1980 and 1987 according to Kahn (1997)3 1980 1987 .18 .16 .14 .12 .18 .16 .14 .12 .08 .06 .04 .02 0 .08 .06 .04 .02 0 --5--4-3-2-1 .1.2.3.4.5 Annual change in wages (*100 = percent change in wages) Annual change in wages (*100 = percent change in wages) 1980 was a time of high inflation in the United States, while 1987 was a period of low inflation. Would the histograms support an assumption that the probability that a worker can renegotiate their wages is fixed over time regardless of the inflation level? Why or why not? (12 points) b. The Calvo model applied to wages would predict that roughly the same fraction of people would experience near 0 changes in wages over time as some would be unlucky and cannot renegotiate their wages. The plots below show histograms of the distribution of wage changes in 1980 and 1987 according to Kahn (1997)3 1980 1987 .18 .16 .14 .12 .18 .16 .14 .12 .08 .06 .04 .02 0 .08 .06 .04 .02 0 --5--4-3-2-1 .1.2.3.4.5 Annual change in wages (*100 = percent change in wages) Annual change in wages (*100 = percent change in wages) 1980 was a time of high inflation in the United States, while 1987 was a period of low inflation. Would the histograms support an assumption that the probability that a worker can renegotiate their wages is fixed over time regardless of the inflation level? Why or why not? (12 points)
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