Staggered Wages, Sticky Prices, and Labor Market Dynamics in Matching Models

This paper investigates the role of staggered wages and sticky prices in explaining stylized

labor market facts. We build on a partial equilibrium search and matching model and expand

the model to a general equilibrium model with sticky prices and/or staggered wages. We show

that the core model creates too much volatility in response to a technology shock. The sticky

price model outperforms the staggered wage model in terms of matching volatilities, while the

combination of both rigidities matches the data reasonably well.