Sequential bargaining in a New-Keynesian model

This working paper by the European Central Bank considers a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period.

The model specifies that workers' bargaining power in the negotiation affects both unemployment volatility and inflation persistence.

The authors find that "the existing jobs wage rigidity potentially plays an important role in the in.ation process while the new entrants wage rigidity matters for employment dynamics."

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