ABSTRACT

In these last years there has been an increasing literature developing DSGE Open Economy Models with market imperfections and nominal rigidities. It is the so called”New Open Economy Macroeconomics”. Up to now within this class of models (and differently from what it is happening in New Keynesian closed economy models) relatively little attention has been devoted to the labor markets. The first two chapters provide two cases where relaxing the assumptions of perfect competition and no frictions in the labor market is important for the question addressed. In the first chapter monopolistic competition in the labor market and nominal wage rigidities are introduced in an otherwise standard small open economy model. Within this framework we address the question of whether the presence of sticky wages provides a rational for Consumer Price Inflation targeting in the model. In the second chapter we introduce matching and searching frictions in the labor market and relate different labor market structures across European countries with differences in the volatility of inflation across the same countries. In the last chapter we use a two-country model with oil in the production function and price and wage rigidities to relate movements in wage and price inflation, real wages and GDP growth rate to oil price changes.