BESS at MNB March 12, 2008 Michael Krause: Inflation Dynamics and Search Frictions

BESS at MNB March 12, 2008 Michael Krause:Inflation Dynamics and Search Frictions

The seminar will be held in the Visitor Center at 3 pm.

Michael Krause

(Bundesbank)

Abstract: The New Keynesian Phillips curve explains inflation dynamics as being mainly driven by current and expected future real marginal costs. In competitive labor markets, these would be proxied by the labor share. In this paper, we explore the role of real marginal cost components that are implied by search frictions in the labor market. We pursue two strategies. In order to estimate a New Keynesian Phillips curve, we construct a measure of real marginal costs by using newly available labor market data on worker finding rates that reflect hiring costs. The measure turns out to be highly correlated with the labor share. Estimates of the Phillips curve based on GMM techniques reveal that inflation dynamics are mainly driven by forward-looking behavior. Full-information Bayesian estimation of the general equilibrium model helps us understand which shocks must be driving the economy to generate the observed unit labor cost dynamics. It turns out that markup fluctuations are the dominant force in labor market fluctuations, and that they imply plausible labor market fluctuations.

Vissza a tetejére

The primary objective of the MNB shall be to achieve and maintain price stability. (...) Without prejudice to its primary objective, the MNB shall support the maintenance of the stability of the system of financial intermediation, the enhancement of its resilience, its sustainable contribution to economic growth; furthermore, the MNB shall support the government’s economic policy and its policy related to environmental sustainability, using instruments at its disposal.