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Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model

  • Kai Christoffel


    (DG Research European Central Bank)

  • Keith Kuester
  • Tobias Linzert

We focus on a quantitative assessment of rigid labor markets in an environment of stable monetary policy. We ask how wages and labor market shocks feed into the inflation process and derive monetary policy implications. We structurally model matching frictions and rigid wages in line with an optimizing rationale in a New-Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques. We find that labor market structure is of prime importance for the business cycle, and for monetary policy. Yet shocks originating in the labor market itself are not important information for the conduct of stabilization policy

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 544.

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Date of creation: 03 Dec 2006
Date of revision:
Handle: RePEc:red:sed006:544
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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