The new keynesian phillips curve and staggered price and wage determination in a model with firm-specific labor

Mikael Carlsson (1) , Andreas Westermark (1)

1 Research Department

We develop a DSGE model with firm-specific labor where wage and price setting are subject to Calvo-type staggering. This is in general an intractable problem due to complicated intertemporal dependencies between price and wage decisions. However, the problem is significantly simplified if we, in line with empirical evidence, assume that prices can be changed whenever wages are. We show that the price- and wage-setting relationships are substantially altered by the introduction of firm-specific labor. Specifically, the inflation response is substantially dampened, whereas the wage inflation response is increased as compared to models with freely mobile labor. These distinctive features of the model with firm-specific labor are supported by empirical evidence from a structural VAR.

Mots clés: E52; E58; J41; Monetary Policy; Inflation Persistence; Labor Market; Strategic Complementarity

Domaines: Économie et finance quantitative [q-fin]

Mikael Carlsson, Andreas Westermark. The new keynesian phillips curve and staggered price and wage determination in a model with firm-specific labor. Journal of Economic Dynamics and Control, 2011, 35 (4), pp.579. ⟨10.1016/j.jedc.2010.12.005⟩. ⟨hal-00781342⟩