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An Open Economy DSGE Model with Search-and-Matching Frictions: The Case of Hungary

Zoltán Jakab () and István Kónya ()

Emerging Markets Finance and Trade, 2016, vol. 52, issue 7, 1606-1626

Abstract: This article builds and estimates a medium scale, small open economy DSGE model augmented with search-and-matching frictions in the labor market, and different wage setting behavior in new and existing jobs. The model is estimated using Hungarian data between 2001–2008. We find that: (i) the inclusion of matching frictions significantly improves the model’s empirical fit; (ii) the extent of new hires wage rigidity is quantitatively important for key macro variables; (iii) labor market shocks do not play an important role in inflation dynamics, but the structure of the labor market influences the monetary transmission mechanism.

Date: 2016
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DOI: 10.1080/1540496X.2014.1000174

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Handle: RePEc:mes:emfitr:v:52:y:2016:i:7:p:1606-1626