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Evaluating the performance of the search and matching model with sticky wages

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  • Christopher Reicher

Abstract

Several authors have proposed staggered wage bargaining as a way to introduce sticky wages into search and matching models while preserving individual rationality. I evaluate the quantitative implications of such an approach. I feed through a series of estimated shocks from US data into a search and matching model with sticky prices and wages. I compare the implications of how the sticky wages enter into the hiring decision, and there seems to be a tradeoff between generating business cycle volatility and matching the lack of a long-run relationship between vacancy creation and inflation. With regard to wages, the sticky wage model unconditionally does a better job at matching wages than the flexible wage model

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1674.

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Length: 39 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:kie:kieliw:1674

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Keywords: wages; sticky prices; staggered Nash bargaining; inflation; new hires; search and matching; business cycles;

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