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...

In this paper, we calculate the potential output and the output gap using a Bayesian-estimated DSGE model of Japan's economy. The model is a two-sector growth model that takes into account growth rate shocks including investment-goods sector-specific technological progress. For bridging the gap...

Many studies of inflation dynamics assume that in the presence of competitive labor markets firms adjust labor input only at the intensive margin. We consider labor market search and examine the role of the extensive margin for inflation dynamics by estimating three models with distinct labor...