Inflation persistence: The path of labor market structural reforms

- We contribute to the ongoing debate on the determinants of inflation dynamics.
- The model shows the role of labor market structural reforms on inflation dynamics.
- The main finding is that regulated labor markets increase inflation persistence.

In this paper, using a monetary policy framework where the central banker is considered as conservative, we investigate the role of labor market structural reforms in inflation dynamics. Our theoretical model suggests that a more deregulated labor market reduces inflation persistence. Using data from a large sample of OECD countries over the period 2000-2012, we empirically confirm our theoretical proposition. The main policy implication is that the reduction of inflation persistence can be addressed not only by central banks, but also by governments through the path of labor market structural reforms.