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

Author

Listed:
  • Kai Christoffel

    (DG Research European Central Bank)

  • Keith Kuester

    (Goethe Universisty Frankfurt)

  • Tobias Linzert

    (European Central Bank)

Abstract

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 do not contain important information for the conduct of stabilization policy

Suggested Citation

  • Kai Christoffel & Keith Kuester & Tobias Linzert, 2006. "Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model," Computing in Economics and Finance 2006 146, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:146
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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