The name is absent

N_t

j=l

Using equation (3) and aggregating for sector i yields

Vit — θ{pt - Pit) + yt

(21)

Given the money demand equation (15), log-linerazing this equation yields
the following;

Vt — mt - Pt

(22)

Finally, the linearized price index in the economy is simply a weighted
average of the ongoing prices in all sectors and is given by

N

Pt — Σ ^aiPit
i=l

(23)

3.1 Simple Taylor Economies with Price and Wage set-
ting

In this section, we examine whether our model can account for a contract
multiplier. Since the novel aspect of our paper is the incorporation of gener-
alized wage setting, it is useful to compare our results with identical models
that makes the standard assumption of a simple Taylor economy. However,
before presenting our main results by using the true parameter values, it
useful to discuss the possible outcomes of the model. We first use the values
of y mentioned above for the simple Taylor case case and we then compare
our model with generalized wage setting by way of numerical simulations.
We later report our main results with true parameter values.

3.2 Calibration

The parameters of the model include the discount factor, β,the elasticity of
substitution of labour,η_bb ,the elasticity of substitution of consumption,^ _c ,the
elasticity of substitution of consumption goods, θ, the monetary policy pa-
rameter, ξ _t.

12