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Inflation dynamics with labour market matching: assessing alternative specifcations

  • Kai Christoffel

    ()

  • James Costain

    ()

  • Gregory de Walque

    ()

  • Keith Kuester

    ()

  • Tobias Linzert

    ()

  • Stephen Millard

    ()

  • Olivier Pierrard

    ()

This paper reviews recent approaches to modeling the labour market and assesses their implications for inflation dynamics through both their effect on marginal cost and on price-setting behavior. In a search and matching environment, we consider the following modeling setups: right-to-manage bargaining vs. efficient bargaining, wage stickiness in new and existing matches, interactions at the firm level between price and wage-setting, alternative forms of hiring frictions, search on-the-job and endogenous job separation. We find that most specifications imply too little real rigidity and, so, too volatile inflation. Models with wage stickiness and right-to-manage bargaining or with firm-specific labour emerge as the most promising candidates.

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File URL: http://www.bcl.lu/fr/Recherche/publications/cahiers_etudes/38/BCLWP038.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 38.

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Length: 48 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:bcl:bclwop:bclwp038
Contact details of provider: Web page: http://www.bcl.lu/

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