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Inflation dynamics with labour market matching: assessing alternative specifications

Kai Christoffel, James Costain, Grégory de Walque (), Keith Kuester, Tobias Linzert, Stephen Millard () and Olivier Pierrard ()

No 375, Bank of England working papers from Bank of England

Abstract: This paper reviews recent approaches to modelling 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 modelling set-ups: right-to-manage bargaining versus 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 relative to the data 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.

Keywords: Inflation dynamics; labour market; business cycle; real rigidities (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab, nep-mac and nep-mon
Date: 2009-08-24
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Working Paper: Inflation dynamics with labour market matching: assessing alternative specifcations (2009) Downloads
Working Paper: Inflation dynamics with labour market matching: assessing alternative specifications (2009) Downloads
Working Paper: Inflation dynamics with labour market matching: assessing alternative specifications (2009) Downloads
Working Paper: Inflation dynamics with labour market matching: assessing alternative specifications (2009) Downloads
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