A labour model for inflation dynamics
A model with sticky nominal wages and right-to-manage bargaining best captures the response of inflation to nominal labour shocks, a new paper from the Philadelphia Federal Reserve posits.
Right-to-manage bargaining occurs when the wage rate is agreed upon first and then the firm is free to choose hours worked at that wage rate so as to maximise profits. The research also finds that the extent to which labour markets matter for inflation dynamics depends crucially on their microeconomic structure
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