Labor market frictions and optimal steady-state inflation
Uppsala University, UCLS and Sveriges Riksbank; Research Department, Sveriges Riksbank
New Keynesian DSGE model with search and matching labor market frictions (Mortensen-Pissarides), staggered nominal wage bargaining with some new hires entering existing wage structures, state-dependent price and wage adjustment (Dotsey et al.),
intermediate goods firms: monopolistic competition with state-dependent pricing; wholesale firms: perfect competition with search and matching labor market; retailers: perfect competition
Table 3 p.79
Replacement rate rr=0.2