Labor Frictions、Inflation And Macroeconomic Policies

Based on the analysis of China’s economy, we find the labor market has played an important role in the economic development., and the labor market has a great impact on the fluctuation of the economy in the transmission mechanism of government monetary and fiscal policies. Therefore, the study of the labor market is essential.This paper established an dynamic stochastic general equilibrium (DSGE) model based on an open economy condition, and we introduce the labor market frictions which is job match and search mechanism. This paper study how the labor market impact on the inflation and economy in the environment of an open economy. We calibrate the parameters in the model and sole the model, combining with China’s macroeconomic data, using Bayesian method to estimate the parameters in the model. We observe how the macroeconomic variables will act to the shocks by the impulse response function. We study how the labor market affect the economy by changing its parameters, then we observe the changes in the impulse response function. Our main results are that:the export sector is sensitive to the labor market. That’s because the structure of our country’s export sector is labor intensive industry. The matching parameter in the labor market has a greater impact on the economy, matching parameter is the efficiency of the labor market which has an greater association with the economy. Wage stickiness parameter has a greater impact on the inflation. Wage stickiness affect wage level which makes the labor costs fluctuate, thus affecting the inflation. And based on the result we give some recommendations on making macroeconomic policies. Finally, we make some outlook for the development of the open economy DSGE model.The main contribution of this paper is the development of an open economy DSGE model, and introducing the labor market frictions. The model is the new development of the study to the economy base on DSGE model.