Christoffel, Kai and Costain, James and Walque, Gregory de and Kuester, Keith and Linzert, Tobias and Millard, Stephen and Pierrard, Olivier. (2009) Inflation dynamics with labour market matching: assessing alternative specifications. NBB Working Papers. No. 164, May 19, 2009. [Working Paper]
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 behaviour. 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.
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