Inflation persistence: The path of labor market structural reforms |
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Institution: | 1. GATE-CNRS, University Lumière Lyon 2 93, chemin des Mouilles - B.P.167, ECULLY cedex 69131, France;2. CRIEF, University of Poitiers, France;1. Seoul National University, Seoul 151-746, Republic of Korea;2. Southern Illinois University Edwardsville, IL 62015, USA |
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Abstract: | In this paper, using a monetary policy framework where the central banker is considered as conservative, we investigate the role of labor market structural reforms in inflation dynamics. Our theoretical model suggests that a more deregulated labor market reduces inflation persistence. Using data from a large sample of OECD countries over the period 2000–2012, we empirically confirm our theoretical proposition. The main policy implication is that the reduction of inflation persistence can be addressed not only by central banks, but also by governments through the path of labor market structural reforms. |
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