Christoffel, Kai Costain, James de Walque, Gregory Kuester, Keith Linzert, Tobias Millard, Stephen Pierrard, Olivier
Year of Publication:
ECB Working Paper 1053
This paper reviews recent approaches to modeling the labour market and assesses their implications for inflation dynamics through both their effect on marginal cost and on price-setting behaviour. In a search and matching environment, we consider the following modeling setups: right-to-manage bargaining vs. efficient bargaining, wage stickiness in new and existing matches, interactions at the firm level between price and wage-setting, alternative forms of hiring frictions, search on-the-job and endogenous job separation. We find that most specifications imply too little real rigidity and, so, too volatile inflation. Models with wage stickiness and right-to-manage bargaining or with firm-specific labour emerge as the most promising candidates.
business cycle Inflation Dynamics labour market real rigidities