The seminar will be held in the Visitor Centre at 15:15.
Carlos Thomas: Bank of Spain
Abstract
This paper studies the e¤ect of labor market reform, in the form of reductions in .ring costs and unemployment bene.ts, on in.ation volatility. With this purpose, we build a New Keynesian model with search and matching frictions in the labor market, and estimate it using Euro Area data. Qualitatively, changes in labor market policies alter the volatility of in.ation in response to shocks, by a¤ecting the volatility of the three components of real marginal costs (hiring costs, .ring costs and wage costs). Quantitatively, we .nd however that neither policy is likely to have an important e¤ect on in.ation volatility, due to the small impact of changes in the volatility of the labor market on in.ation dynamics.
JEL: E31, E32, J64.
Keywords: Labor market policies, Search and matching frictions, New Keynesian model.