Equilibrium Unemployment, Job Flows and Inflation Dynamics

53 Pages Posted: 17 May 2004

See all articles by Antonella Trigari

Antonella Trigari

Bocconi University - Department of Economics

Date Written: February 2004

Abstract

In order to explain the joint fluctuations of output, inflation and the labor market, this paper first develops a general equilibrium model that integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities. Then, it estimates a set of structural parameters characterizing the dynamics of the labor market. The estimated model can explain the cyclical behavior of employment, hours per worker, job creation and job destruction conditional on a shock to monetary policy. Moreover, allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output. This helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock. The ability of the model to account for the joint dynamics of output and inflation relies on its ability to explain the dynamics of the labor market.

Keywords: Business cycles, search and matching models, monetary policy, inflation

JEL Classification: E32, J41, J64, E52, E31

Suggested Citation

Trigari, Antonella, Equilibrium Unemployment, Job Flows and Inflation Dynamics (February 2004). Available at SSRN: https://ssrn.com/abstract=515066

Antonella Trigari (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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