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The Role of Real Wage Rigidity and Labor Market Frictions for Inflation Persistence
Author(s) -
CHRISTOFFEL KAI,
LINZERT TOBIAS
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2010.00348.x
Subject(s) - economics , wage , new keynesian economics , inflation (cosmology) , efficiency wage , business cycle , real wages , rigidity (electromagnetism) , persistence (discontinuity) , labour economics , monetary economics , keynesian economics , monetary policy , physics , geotechnical engineering , structural engineering , theoretical physics , engineering
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.