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The Impact of Labor Markets on the Transmission of Monetary Policy in an Estimated DSGE Model

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Author Info

  • Christoffel, Kai

    ()
    (European Central Bank)

  • Kuester, Keith

    ()
    (Goethe University Frankfurt)

  • Linzert, Tobias

    ()
    (European Central Bank)

Abstract

Real wages are a key determinant of marginal costs. The latter themselves are a driving force of inflation. We ask how wages and labor market shocks feed into the inflation process. We model search and matching frictions in the labour market in an otherwise standard New-Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques for German data from the mid 70s to present. In our framework, we find that labor market structure is important for the evolution of the business cycle, and for monetary policy in particular. Yet labor market shocks are not important information for the conduct of stabilization policy.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1902.

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Length: 60 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1902

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Keywords: labor market; wage rigidity; bargaining; Bayesian estimation;

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References

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  1. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
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  7. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Vincent Bodart & Gregory de Walque & Olivier Pierrard & Henri R. Sneessens & Raf Wouters, 2006. "Nominal wage rigidities in a new Keynesian model with frictional unemployment," Working Paper Research 97, National Bank of Belgium.
  2. Christoffel, Kai & Linzert, Tobias, 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).
  3. Gregory DE WALQUE & Olivier PIERRARD & Henri SNEESSENS & Raf WOUTERS, 2009. "Sequential Bargaining in a Neo-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiations," Annales d'Economie et de Statistique, ENSAE, issue 95-96, pages 223-250.

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