On-the-job Search, Ination Dynamics and Welfare Cost of Ination
نویسنده
چکیده
This paper examines the implications of on-the-job search for both short-run dynamics of ination and long-run welfare costs of ination in a sticky price model with labour market search frictions. Both unemployed workers and workers with bad jobs can search. Firms can adjust labour at both intensive and extensive margins. On-the-job search gives rise a strong propagation of monetary policy shocks through the extensive margin since on-thejob search opens up an extra channel of employment. However, on-the-job has little e¤ect on ination on impact since in the rst period rms can only adjust intensive margin, which is very costly. The welfare costs of ination generated by the model with on-the-job search and the model with the on-the-job search mechanism being shut down are similar as that generated by the standard New Keynesian model, suggesting that the structure of labour market is irrelevant to the welfare costs of trend ination unless extra nominal rigidities are added to the model. JEL: classi cation: E24; E31; E32
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