Inflation Dynamics with Labour Market Matching: Assessing Alternative Specifications

53 Pages Posted: 25 Mar 2009

See all articles by Kai Philipp Christoffel

Kai Philipp Christoffel

European Central Bank (ECB)

James S. Costain

Banco de España - Research Department

Gregory de Walque

affiliation not provided to SSRN

Keith Kuester

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Tobias Linzert

European Central Bank (ECB); IZA Institute of Labor Economics

Stephen Millard

Bank of England

Olivier Pierrard

Banque Centrale du Luxembourg; IRES, UCL

Multiple version iconThere are 3 versions of this paper

Date Written: March 13, 2009

Abstract

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.

Keywords: inflation dynamics, labour market, business cycle, real rigidities

JEL Classification: E31, E32, E24, J64

Suggested Citation

Christoffel, Kai Philipp and Costain, James S. and Walque, Gregory de and Kuester, Keith and Linzert, Tobias and Millard, Stephen and pierrard, olivier, Inflation Dynamics with Labour Market Matching: Assessing Alternative Specifications (March 13, 2009). FRB of Philadelphia Working Paper No. 09-6, Bank of England Working Paper No. 375, Available at SSRN: https://ssrn.com/abstract=1367772 or http://dx.doi.org/10.2139/ssrn.1367772

Kai Philipp Christoffel (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

James S. Costain

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

Gregory de Walque

affiliation not provided to SSRN

Keith Kuester

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Tobias Linzert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Stephen Millard

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Olivier Pierrard

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

IRES, UCL ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

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