Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297437 
Year of Publication: 
2023
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2023-52
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We develop a heterogeneous-agent New Keynesian model featuring a frictional labor market with on-the-job search to quantitatively study the positive and normative implications of employer-to-employer (EE) transitions for inflation. We find that EE dynamics played an important role in shaping the differential inflation dynamics observed during the Great Recession and COVID-19 recoveries, with the former exhibiting subdued EE transitions and inflation despite both episodes sharing similar unemployment dynamics. The optimal monetary policy prescribes a strong positive response to EE fluctuations, implying that central banks should distinguish between recovery episodes with similar unemployment but different EE dynamics.
Subjects: 
Business fluctuations and cycles
Inflation and prices
Labour markets
Monetary policy
JEL: 
E12
E24
E52
J31
J62
J64
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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