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Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model

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  • Kai Christoffel

    ()
    (DG Research European Central Bank)

  • Keith Kuester

    (Goethe Universisty Frankfurt)

  • Tobias Linzert

    (European Central Bank)

Abstract

We focus on a quantitative assessment of rigid labor markets in an environment of stable monetary policy. We ask how wages and labor market shocks feed into the inflation process and derive monetary policy implications. We structurally model matching frictions and rigid wages in line with an optimizing rationale in a New-Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques. We find that labor market structure is of prime importance for the business cycle, and for monetary policy. Yet shocks originating in the labor market itself do not contain important information for the conduct of stabilization policy

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 146.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:146

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Keywords: Labor Market; wage rigidity; bargaining Bayesian estimation;

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