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On-the-Job Search and Inflation under the Microscope

Author

Listed:
  • Darougheh, Saman

    (Danmarks Nationalbank)

  • Faccini, Renato

    (Danmarks Nationalbank)

  • Melosi, Leonardo

    (University of Warwick, De Nederlandsche Bank, European University Institute and CEPR)

  • Villa, Alessandro T.

    (FRB Chicago)

Abstract

We develop a Heterogeneous Agents New Keynesian (HANK) model with a job ladder and endogenous on-the-job search (OJS) that challenges the traditional view of a negative relationship between unemployment and inflation. On the one hand, OJS is inflationary, sparking wage competition among firms to attract or retain workers. On the other hand, OJS strengthens workers’ bargaining power, reducing firms’ incentives to post vacancies and thereby increasing unemployment. The model explains the effects of the 2012 Danish tax reform, which influenced OJS differentially across the income distribution, on the employment transitions and wage growth observed in the microdata.

Suggested Citation

  • Darougheh, Saman & Faccini, Renato & Melosi, Leonardo & Villa, Alessandro T., 2024. "On-the-Job Search and Inflation under the Microscope," The Warwick Economics Research Paper Series (TWERPS) 1536, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1536
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2024/twerp_1536-_melosi.pdf
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    References listed on IDEAS

    as
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    6. Serdar Birinci & Fatih Karahan & Yusuf Mercan & Kurt See, 2022. "Labor Market Shocks and Monetary Policy," Working Papers 2022-016, Federal Reserve Bank of St. Louis, revised Dec 2024.
    7. Renato Faccini & Leonardo Melosi, 2023. "Job-to-Job Mobility and Inflation," Working Paper Series WP 2023-03, Federal Reserve Bank of Chicago.
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    Keywords

    Job ladder models ; inflation ; Danish microdata;
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