Narrowing the gap between New Keynesian and ‘disequilibrium ’ theories

Wage and price formation are analyzed in a general equilibrium model combining New Keynesian features (wage bargaining and monopolistic competition) with quantity rationing due to stochastic demand and technological constraints. The alternative implications of ‘efficient and ‘right-to-manage ’ models of bargaining are studied. The price-cost margin is less favorable to firms with eficient bargaining. A Phillips-like wage relationship obtains only in the right-to-manage case, although the interpretation of the role of unemployment is more complex than in standard models. Equilibrium unemployment results from the complementary interaction of agents ’ market power and of quantity constraints. 1