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Labor Market Institutions and Wage and Inflation Dynamics

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Author Info

  • Fatih Macit

    ()
    (Department of Economics, Beykent University, Sisli-Istanbul, TURKEY 34396)

Abstract

This paper developes a New Keynesian (NK) model that incorporates standard search and matching structure with firing costs. I analyze how labor market institutions affect the macroeconomic dynamics, in particular, wage and inflation dynamics. I particularly look at two important labor market institutions namely unemployment benefits and firing costs. I find that in countries where unemployment benefits are higher and there are more strict employment protection legislations, inflation and wages become less volatile and more persistent. I also find that the level of these labor market institutions affect how wages and inflation respond to exogenous shocks, in particular, to productivity and monetary policy shocks. I first present some empirical evidence that shows a cross-country link between labor market institutions and wages and inflation. Then I build a dynamic stochastic general equilibrium model which provides theoretical support for this empirical evidence.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 40 (2010)
Issue (Month): 3 (December)
Pages: 393-410

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Handle: RePEc:eap:articl:v:40:y:2010:i:3:p:393-410

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Related research

Keywords: balance of payments; disequilibrium; exchange rates;

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Cited by:
  1. Fatih Macit, 2010. "The Role of Labor Market Institutions on Wage and Inflation Dynamics: Empirical Evidence from OECD Economies," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 40(1), pages 64-77, March.
  2. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and FDI in a two-sector general equilibrium model," MPRA Paper 35564, University Library of Munich, Germany.
  3. Fatih Macit, 2012. "Labor Market Institutions and Labor Productivity Growth," Economic Research Guardian, Weissberg Publishing, vol. 2(1), pages 121-128, May.
  4. Chaudhuri, Sarbajit & Bandopadhyay, Titas Kumar, 2012. "Job-search and foreign capital inflow - a three sector general equilibrium analysis," MPRA Paper 38921, University Library of Munich, Germany.

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