Search frictions, real rigidities and inflation dynamics

Carlos Thomas

No 806, Working Papers from Banco de España

Abstract: I analyze the effect of search frictions on inflation dynamics, in a New Keynesian model where firms make both pricing and vacancy posting decisions. I find that search frictions create real rigidities in price setting. This mechanism flattens the New Keynesian Phillips curve, relative both to the standard model with a frictionless labor market and a model where pricing and vacancy posting decisions are made by different subsets of firms. This helps the model improve its empirical performance along a number of dimensions. First, inflation becomes more persistent. Second, output responses to monetary shocks become larger and more persistent. Finally, unemployment becomes more volatile.

Keywords: search and matching; real rigidities; New Keynesian Phillips curve (search for similar items in EconPapers)
JEL-codes: E32 J40 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2008-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (20)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/08/Fic/dt0806e.pdf First version, March 2008 (application/pdf)

Related works:
Journal Article: Search Frictions, Real Rigidities, and Inflation Dynamics (2011)
Journal Article: Search Frictions, Real Rigidities, and Inflation Dynamics (2011)
Working Paper: Search Frictions, Real Rigidities and Inflation Dynamics (2007)
Working Paper: Search frictions, real rigidities and inflation dynamics (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0806

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