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A new insight on the inflation persistence: the role of severance pay


  • Thomas COUDERT

    () (LaRGE Research Center, Université de Strasbourg)


The aim of this paper is to highlight the interaction between inflation persistence and the labor market institutions in a New Keynesian model with a search and matching labor market. In this framework, I reintroduce severance pay and show that the negotiation of this severance pay creates a new real rigidity into wage dynamics. Indeed, following the bonding critique, in a context of free negotiation and in presence of firing costs, workers agree to pay a share of severance pay in order to reduce the burden on firms. Then, a contribution system appears, affecting the real wage dynamics and inflation persistence through the New Keynesian Phillips curve.

Suggested Citation

  • Thomas COUDERT, 2016. "A new insight on the inflation persistence: the role of severance pay," Working Papers of LaRGE Research Center 2016-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  • Handle: RePEc:lar:wpaper:2016-06

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    References listed on IDEAS

    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
    3. Fatih Macit, 2010. "Labor Market Institutions and Wage and Inflation Dynamics," Economic Analysis and Policy, Elsevier, vol. 40(3), pages 393-410, December.
    4. Antonella Trigari, 2006. "The Role of Search Frictions and Bargaining for Inflation Dynamics," Working Papers 304, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, September.
    6. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Working Paper Series 923, European Central Bank.
    7. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
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    More about this item


    Labor Market Search; Severance Pay; Wage Bargaining; Inflation Persistence.;

    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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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