A new insight on the inflation persistence: the role of severance pay
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.
|Date of creation:||2016|
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- 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.
- Fatih Macit, 2010. "Labor Market Institutions and Wage and Inflation Dynamics," Economic Analysis and Policy, Elsevier, vol. 40(3), pages 393-410, December.
- 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.
- 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, 09.
- 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, 09.
- Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
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