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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 1053, Working Paper Series from European Central Bank

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 vs. 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 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. JEL Classification: E31, E32, E24, J64

Keywords: business cycle; inflation dynamics; labour market; real rigidities (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
Date: 2009-05
Note: 85234
References: View references in EconPapers View complete reference list from CitEc
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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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