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Inflation dynamics with labour market matching : assessing alternative specifications

  • Kai Christoffel

    ()

    (European Central Bank)

  • James Costain

    ()

    (División de Investigación, Servicio de Estudios, Banco de España)

  • Gregory de Walque

    ()

    (Research Department, National Bank of Belgium)

  • Keith Kuester

    ()

    (Research Department, Federal Reserve Bank of Philadelphia)

  • Tobias Linzert

    ()

    (European Central Bank)

  • Stephen Millard

    ()

    (Bank of England)

  • Olivier Pierrard

    ()

    (Banque Centrale du Luxembourg)

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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Paper provided by National Bank of Belgium in its series Working Paper Research with number 164.

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Length: 57 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:nbb:reswpp:200905-19
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