We develop and estimate a dynamic stochastic general equilibrium model that features sticky prices, a variable elasticity of demand facing firms and firm-specific labor. While reconciling to a good extent the micro and macro evidence on the behavior of prices, the model offers an accurate...

The sticky-price theory has proved fairly successful in explaining the dynamic effects of technology shocks on employment, at least under weak accommodation of monetary policy to the shocks. Yet, when we extend the analysis to a broader set of labor market variables, including employment as well...