IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Inflation-Output Tradeoff: Which Type of Labor Market Rigidity Is to Be Blamed?

  • Christian Merkl

In the standard New Keynesian sticky price model the central bank faces no contradiction between the stabilization of inflation and the stabilization of the welfare relevant output gap after a productivity shock hits the economy. When the standard model is enhanced by real wage rigidities or labor turnover costs, an endogenous short-run inflation-output tradeoff arises. This paper compares the implications of the two labor market rigidities. It argues that economists and policymakers alike should pay more attention to labor turnover costs for the following reasons. First, a model with labor turnover costs generates impulse response functions that are more in line with the empirical evidence than those of a model with real wage rigidities. Second, labor turnover costs are the dominant source for the inflation-output tradeoff when both rigidities are present in the model. And finally, there is stronger empirical evidence for the existence of labor turnover costs than for real wage rigidities

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.ifw-members.ifw-kiel.de/publications/the-inflation-output-tradeoff-which-type-of-labor-market-rigidity-is-to-be-blamed/Kap1495.pdf
Download Restriction: no

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1495.

as
in new window

Length: 18 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:kie:kieliw:1495
Contact details of provider: Postal:
Kiellinie 66, D-24105 Kiel

Phone: +49 431 8814-1
Fax: +49 431 85853
Web page: http://www.ifw-kiel.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Christoffel, Kai & Linzert, Tobias, 2005. "The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics," Working Paper Series 0556, European Central Bank.
  2. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
  3. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 865-887, July.
  4. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
  5. Olivier J. Blanchard & Jordi Galí, 2007. "The macroeconomic effects of oil price shocks: Why are the 2000s so different from the 1970s?," Economics Working Papers 1045, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2008.
  6. Ester Faia & Wolfgang Lechthaler & Christian Merkl, 2014. "Labor Selection, Turnover Costs, and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(1), pages 115-144, 02.
  7. Olivier J. Blanchard & Jordi Gali, 2007. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?," NBER Working Papers 13368, National Bureau of Economic Research, Inc.
  8. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," Kiel Working Papers 1263, Kiel Institute for the World Economy.
  9. Olivier Jean Blanchard & Jordi Galí, 2005. "Real wage rigidities and the New Keynesian model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  10. Ester Faia & Wolfgang Lechthaler & Christian Merkl, 2009. "Labor Turnover Costs, Workers' Heterogeneity and Optimal Monetary Policy," Kiel Working Papers 1534, Kiel Institute for the World Economy.
  11. John Addison & Paulino Teixeira, 2005. "What Have We Learned about the Employment Effects of Severance Pay? Further Iterations of Lazear Et al," Empirica, Springer, vol. 32(3), pages 345-368, 09.
  12. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  13. Luca Dedola & Stefano Neri, 2006. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Temi di discussione (Economic working papers) 607, Bank of Italy, Economic Research and International Relations Area.
  14. Guido Ascari & Christian Merkl, 2009. "Real Wage Rigidities and the Cost of Disinflations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 417-435, 03.
  15. Faia, Ester, 2006. "Optimal monetary policy rules with labor market frictions," Working Paper Series 0698, European Central Bank.
  16. Mirko Abbritti; Sebastian Weber, 2008. "Labor Market Rigidities and the Business Cycle: Price vs. Quantity Restricting Institutions," IHEID Working Papers 01-2008, Economics Section, The Graduate Institute of International Studies, revised Jan 2008.
  17. Wolfgang Lechthaler & Christian Merkl & Dennis Snower, 2010. "Monetary Persistence and the Labor Market: A New Perspective," CESifo Working Paper Series 2935, CESifo Group Munich.
  18. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2007. "Wage rigidity and job creation," Economics Working Papers 1047, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2012.
  19. Merkl, Christian & Schmitz, Tom, 2011. "Macroeconomic volatilities and the labor market: First results from the euro experiment," European Journal of Political Economy, Elsevier, vol. 27(1), pages 44-60, March.
  20. Merkl, Christian & Snower, Dennis J., 2006. "The Caring Hand that Cripples: The East German Labour Market after Reunification," CEPR Discussion Papers 5656, C.E.P.R. Discussion Papers.
  21. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
  22. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kie:kieliw:1495. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dieter Stribny)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.