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Sequential bargaining in a New Keynesian model with frictional unemployment and staggered wage negotiation

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Author Info
Gregory de Walque () (National Bank of Belgium, Research Department, University of Namur)
Olivier Pierrard () (Central Bank of Luxembourg, Catholic University of Louvain)
Henri Sneessens () (Catholic University of Louvain)
Raf Wouters () (National Bank of Belgium, Research Department, University of Louvain)

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Abstract

We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated for each period. The workers' bargaining power in the working time negotiations affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms tend to adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers' bargaining power for wages and (iii) the more important the hourly wage in determining the marginal cost. This set-up produces realistic labour market figures together with inflation persistence. Distinguishing the probability to bargain the wage rate for existing and new jobs, we show that the intensive margin helps reduce the new entrants' wage rigidity required to match observed unemployment volatility.

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Paper provided by National Bank of Belgium in its series Research series with number 200902-19.

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Length: 39 pages
Date of creation: Feb 2009
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Handle: RePEc:nbb:reswpp:200902-19

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Related research
Keywords: DSGE; Search and Matching; Nominal Wage Rigidity; Monetary Policy;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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