The role of real wage rigidity and labor market frictions for unemployment and inflation dynamics
By: by Kai Christoffel, Tobias Linzert.
Contributors: Linzert, Tobias.
Series: Discussion paper ;; no. 1896; Discussion paper (Forschungsinstitut zur Zukunft der Arbeit : Online) ;; no. 1896
Publisher: IZA
Published: 2005
Place of publication: Bonn, Germany
Language: eng
Format: Electronic resource
Subjects: Wages -- Mathematical models.; Labor market -- Mathematical models.; Unemployment -- Mathematical models.; Inflation (Finance) -- Mathematical models.; Keynesian economics.; Business cycles.
Description: "In this paper we incorporate a labor market with matching frictions and wage rigidities into the New Keynesian business cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions affect the transmission process of monetary policy. The model allows real wage rigidities to interact with adjustments in employment and hours affecting inflation dynamics via marginal costs. We find that the response of unemployment and inflation to an interest rate innovation depends on the degree of wage rigidity. Generally, more rigid wages translate into more persistent movements of aggregate inflation. Moreover, the impact of a monetary policy shock on unemployment and inflation depends also on labor market fundamentals such as bargaining power and the flows in and out of employment"--Forschungsinstitut zur Zukunft der Arbeit web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 12/19/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.