This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Search Frictions, Real Rigidities and Inflation Dynamics

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Carlos Thomas

Additional information is available for the following registered author(s):

Abstract

The standard New Keynesian model suffers from the so-called .macro-micro pricing conflict:in order to match the dynamics of inflation implied by macroeconomic data, the model needsto assume an average duration of price contracts which is much longer than what is observedin micro data. Here I show how departing from the standard model's assumption of aperfectly competitive labor market can help resolve the pricing conflict. I do so by assumingsearch frictions in the labor market. In this framework, labor becomes firm-specific andmarginal cost curves become upward-sloping. This mechanism reduces the slope of the NewKeynesian Phillips curve given a frequency of price adjustment. Conversely, given anestimate of this slope, my model implies shorter price durations than the standard model. Fora plausible calibration and for different slope values, my model consistently delivers pricedurations that are roughly half of those implied by the standard model.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://cep.lse.ac.uk/pubs/download/dp0822.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0822.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:cep:cepdps:dp0822

Contact details of provider:
Web page: http://cep.lse.ac.uk/pubs/

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: New Keynesian macroeconomics micro data inflation search and matching

Other versions of this item:

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Antonella Trigari, 2004. "Equilibrium unemployment, job flows and inflation dynamics," Working Paper Series 304, European Central Bank. [Downloadable!]
  3. Mark Bils and Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    Other versions:
  4. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," NBER Reprints 0092, National Bureau of Economic Research, Inc.
  5. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December. [Downloadable!] (restricted)
  6. Woodford, Michael, 2005. "Firm-Specific Capital and the New Keynesian Phillips Curve," MPRA Paper 825, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  7. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1980-1), pages 91-142. [Downloadable!]
  8. Kai Christoffel & Tobias Linzert, 2005. "The Role of Real Wage Rigidity and Labor Market Frictions for Unemployment and Inflation Dynamics," IZA Discussion Papers 1896, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October. [Downloadable!] (restricted)
  10. Martin Eichenbaum & Jonas D.M. Fisher, 2004. "Evaluating the Calvo Model of Sticky Prices," NBER Working Papers 10617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!] (restricted)
  12. Mark Gertler & Antonella Trigari, 2006. "Unemployment fluctuations with staggered Nash wage bargaining," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  13. Carlos Thomas, 2006. "Search and Matching Frictions and Optimal Monetary Policy," CEP Discussion Papers dp0743, Centre for Economic Performance, LSE. [Downloadable!]
  14. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
    Other versions:
  15. Gomes, Joao & Greenwood, Jeremy & Rebelo, Sergio, 2001. "Equilibrium unemployment," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 109-152, August. [Downloadable!] (restricted)
    Other versions:
  16. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 183-203, April. [Downloadable!] (restricted)
    Other versions:
  17. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November. [Downloadable!] (restricted)
  18. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March. [Downloadable!] (restricted)
  19. Barbara Petrongolo & Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June. [Downloadable!] (restricted)
    Other versions:
  20. Olivier Blanchard & Jordi Gali, 2006. "A new Keynesian model with unemployment," Research series 200610-4, National Bank of Belgium. [Downloadable!]
    Other versions:
  21. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April. [Downloadable!] (restricted)
    Other versions:
  22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  23. Rafael Domenech & Javier Andres & Javier Ferri, 2006. "Price Rigidity and the Volatility of Vacancies and Unemployment," Working Papers 0601, International Economics Institute, University of Valencia. [Downloadable!]
  24. Lawrence J. Christiano, Martin Eichenbaum, and Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Aitor Erce, 2008. "A structural model of sovereign debt issuance: assessing the role of financial factors," Banco de España Working Papers 0809, Banco de España. [Downloadable!]
  2. Michael Krause & David Lopez-Salido & Thomas Lubik, 2008. "Inflation Dynamics With Search Frctions: A Structural Econometric Analysis," CAMA Working Papers 2008-06, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
    Other versions:
  3. Michael U. Krause & Thomas A. Lubik & David López-Salido, 2008. "Inflation dynamics with search frictions : a structural econometric analysis," Working Paper 08-01, Federal Reserve Bank of Richmond. [Downloadable!]
Statistics
Access and download statistics

Did you know? You too can volunteer for RePEc, for example by encouraging others to register as authors.

This page was last updated on 2008-9-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.