Inflation dynamics with labour market matching: assessing alternative specifications

This paper reviews recent approaches to modeling the labour market and assessestheir implications for in‡ation dynamics through both their e¤ect on marginalcost and on price-setting behaviour. In a search and matching environment, weconsider the following modeling setups: right-to-manage bargaining vs. e¢ cientbargaining, wage stickiness in new and existing matches, interactions at the …rmlevel between price and wage-setting, alternative forms of hiring frictions, searchon-the-job and endogenous job separation. We …nd that most speci…cationsimply too little real rigidity and, so, too volatile...