Real Price and Wage Rigidities in a Model with Matching Frictions

Keith Kuester

No 546, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: I reconcile macro- and micro-evidence on price-setting in a search and matching framework. Negotiation of wages substantially increases strategic complementarity of price-setting and thus real price rigidities which reduces implied price durations. This mechanism also dampens wage responses to shocks which is necessary to explain the highly volatile vacancy response in the data. Another interesting finding is that inflation via the Phillips curve is not only driven by an output gap but also by an employment gap – a feature usually neglected in empirical research. The modified model matches impulse responses of an SVAR for post Volcker-disinflation U.S. data very well

Keywords: firm-specific labor; real rigidities; Phillips curve; wage rigidity; bargaining. (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 J63 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Real price and wage rigidities in a model with matching frictions (2007)
Working Paper: Real Price and Wage Rigidities in a Model with Matching Frictions (2006)
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