Marc de la Barrera i Bardalet

This paper develops a New Keynesian model with monopsonistic firms that set wages and prices under nominal adjustment frictions. The identity of the wage setter matters a lot for the micro pricing behavior of firms and the macro inflation response to shocks. Given a demand shock, the monopsonistic model is more inflationary than the standard models of wage rigidity to the point that it can generate that output falls in response to demand shocks if wage rigidity is large enough.