Ichiue, Hibiki and Kurozumi, Takushi and Sunakawa, Takeki (2011): Inflation dynamics and labor market specifications: a Bayesian DSGE approach for Japan's economy.
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Which labor market specification is better able to describe inflation dynamics, a widely-used sticky wage model or a recently-investigated labor market search model? Using a Bayesian likelihood approach, we estimate these two models with Japan’s data. This paper shows that the labor market search model is superior to the sticky wage model in terms of both marginal likelihood and out-of-sample forecast performance, particularly regarding inflation. The labor market search model is better able to replicate the cross-correlation among inflation, real wages, and output in the data. Moreover, in this model, real marginal cost is determined by both hiring cost and unit labor cost that varies with employment fluctuations, which gives rise to a high contemporaneous correlation between inflation and real marginal cost as represented in the New Keynesian Phillips curve.
|Item Type:||MPRA Paper|
|Original Title:||Inflation dynamics and labor market specifications: a Bayesian DSGE approach for Japan's economy|
|Keywords:||Inﬂation dynamics; Marginal cost; Labor market search; Extensive margin; Bayesian estimation|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
|Depositing User:||Takeki Sunakawa|
|Date Deposited:||15. Sep 2011 17:53|
|Last Modified:||13. Feb 2013 11:06|
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