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Unemployment and Wage Rigidity in Japan: A DSGE Model Perspective

Chun-Hung Kuo and Hiroaki Miyamoto

No EMS_2016_06, Working Papers from Research Institute, International University of Japan

Abstract: This paper develops a dynamic stochastic general equilibrium model with labor market frictions and nominal wage rigidity. We estimate our model for Japan's economy using Bayesian methods. This allows us to estimate the structural parameters of the Japanese economy, the unobservable shocks and examine their transmission mechanism. We can also study how wage rigidity affects overall model performance. Our analysis demonstrates the importance of including nominal wage rigidity in explaining the Japanese data. We find that while nominal wage rigidity plays only a trivial role in inflation dynamics, it is crucial in determining the response of labor market variables to structural shocks.

Keywords: DSGE models; Bayesian estimation; Labor market search; Wage rigidity (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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