Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83127
Authors: 
Carlsson, Mikael
Westermark, Andreas
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2006:31
Abstract: 
We develop a DSGE model with firm-specific labor where firm-level wage bargaining and price setting are subject to Calvo-type staggering. This is in general an intractable problem due to complicated intertemporal dependencies between price and wage decisions. However, the problem is significantly simplified if we, in line with empirical evidence, assume that prices can be changed whenever wages are. We show that the price- and wage-setting relationships are substantially altered by the introduction of firm-specific labor. Specifically, the inflation response is substantially dampened, whereas the wage inflation response is increased as compared to models with freely mobile labor. These distinctive features of the model with firm-specific labor is supported by empirical evidence from a structural VAR.
Subjects: 
Monetary Policy
Inflation Persistence
Labor Market
Bargaining
JEL: 
C72
C78
D62
Document Type: 
Working Paper

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