The Role of Real Wage Rigidity and Labor Market Frictions for Inflation Persistence |
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Authors: | KAI CHRISTOFFEL TOBIAS LINZERT |
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Institution: | 1. Kai Christoffel is at the European Central Bank (E‐mail: Kai.Christoffel@ecb.europa.eu).;2. Tobias Linzert is at the European Central Bank (E‐mail: Tobias.Linzert@ecb.europa.eu). |
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Abstract: | We analyze the transmission mechanism of wages to inflation within a New Keynesian business cycle model with wage rigidities and labor market frictions. Our main focus is on the channel of real wage rigidities on inflation persistence for which we find the specification of the wage bargaining process to be of crucial importance. Under the standard efficient Nash bargaining, the feedback of wage rigidities on inflation is ambiguous and depends on other labor market variables. However, under the alternative right‐to‐manage bargaining we find that more rigid wages translate directly into more persistent movements of aggregate inflation. |
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Keywords: | E31 E32 E52 J64 monetary policy matching models labor market search inflation persistence real wage rigidity |
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