Labor Market Search, Inflation and Emloyment Dynamics

This paper tries to assess which kind of real rigidities can enhance our understanding of inflation and labor market dynamics in a dynamic general equilibrium model with capital and labor market frictions and nominal price rigidities. We particularly introduce real wage rigidities through non-separable preferences as suggested by ChA©ron and Langot (2004). This aims to obtain weaker procyclical real wage in the lines of recent literature. We show that the real rigidities, namely habit formation in consumption and capital adjustment cost improve our understanding of inflation dynamics and persistent real effects of monetary shocks. In addition, we investigate the effects of positive technology shocks on the labor market dynamics.