That sticky wages and inflation targeting are uneasy bedfellows is easy to see. When wages are sticky, an inflation targeting central bank in effect targets the real wage. This produces inefficient outcomes when shocks occur which require an adjust- ment to the real wage (Erceg, Henderson and Levin (2000).) For example, suppose a shock - a positive oil price shock, say - occurs which reduces the value marginal product of labor. Preventing a large fall in employment under these circumstances central bank, the required fall in the real wage would not occur and employment would be inefficiently low
