The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics

Kai Christoffel and Tobias Linzert

No 2006,11, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: In this paper we incorporate a labor market with matching frictions and wage rigidities into the New Keynesian business cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions affect the transmission process of monetary policy. The model allows real wage rigidities to interact with adjustments in employment and hours affecting inflation dynamics via marginal costs. We find that the response of unemployment and inflation to an interest rate innovation depends on the degree of wage rigidity. Generally, more rigid wages translate into more persistent movements of aggregate inflation. Moreover, the impact of a monetary policy shock on unemployment and inflation depends also on labor market fundamentals such as bargaining power and the flows in and out of employment.

Keywords: Monetary Policy; Matching Models; Labor Market Search; Inflation Persistence; Real Wage Rigidity (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 J64 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-lab, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/19639/1/200611dkp.pdf (application/pdf)

Related works:
Working Paper: The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics (2005)
Working Paper: The Role of Real Wage Rigidity and Labor Market Frictions for Unemployment and Inflation Dynamics (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:4248

Access Statistics for this paper

More papers in Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().