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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
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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