The Impact of Labor Markets on the Transmission of Monetary Policy in an Estimated DSGE Model

Kai Christoffel, Keith Kuester and Tobias Linzert

No 1902, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Real wages are a key determinant of marginal costs. The latter themselves are a driving force of inflation. We ask how wages and labor market shocks feed into the inflation process. We model search and matching frictions in the labour market in an otherwise standard New-Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques for German data from the mid 70s to present. In our framework, we find that labor market structure is important for the evolution of the business cycle, and for monetary policy in particular. Yet labor market shocks are not important information for the conduct of stabilization policy.

Keywords: labor market; wage rigidity; bargaining; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E52 E58 J64 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2005-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (10)

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