Arbeitspapier
The inflation-output tradeoff: which type of labor market rigidity is to be blamed?
In the standard New Keynesian sticky price model the central bank faces no contradiction between the stabilization of inflation and the stabilization of the welfare relevant output gap after a productivity shock hits the economy. When the standard model is enhanced by real wage rigidities or labor turnover costs, an endogenous short-run inflation-output tradeoff arises. This paper compares the implications of the two labor market rigidities. It argues that economists and policymakers alike should pay more attention to labor turnover costs for the following reasons. First, a model with labor turnover costs generates impulse response functions that are more in line with the empirical evidence than those of a model with real wage rigidities. Second, labor turnover costs are the dominant source for the inflation-output tradeoff when both rigidities are present in the model. And finally, there is stronger empirical evidence for the existence of labor turnover costs than for real wage rigidities.
- Language
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Englisch
- Bibliographic citation
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Series: Kiel Working Paper ; No. 1495
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Business Fluctuations; Cycles
Monetary Policy
Labor Demand
real wage rigidity
labor turnover costs
unemployment
tradeoff
Geldpolitik
Konjunkturpolitik
Ungleichgewichtstheorie
Lohnrigidität
Arbeitsmobilität
Transaktionskosten
Inflation
Arbeitslosigkeit
Theorie
- Handle
- Last update
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20.09.2024, 8:23 AM CEST
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Merkl, Christian
- Kiel Institute for the World Economy (IfW)
Time of origin
- 2009