Flexible inflation targeting and labor market inefficiencies
International Monetary Fund
New Keynesian DSGE model with search and matching frictions in the labor market, Nash wage bargaining, Calvo price stickiness in retail sector, and congestion externalities where the Hosios condition is not satisfied
wholesale firms: perfectly competitive with search frictions; retail firms: monopolistically competitive with Calvo pricing
Table 3, Panel B, row e
Optimal policy with ε-ξ=0.4, bargaining shock σξ=1, large steady state distortion