Search with Wage Posting under Sticky Prices

We consider the macroeconomic implications of the interaction between nominal rigidi-ties and labor market frictions in a framework where \u85rms jointly make pricing and hiring decisions. In our New Keynesian model, workers randomly search for jobs and are matched with rms that post take-it-or-leave-it contracts and are subject to sticky prices. Relative to the typical model that separates search frictions and nominal frictions into wholesale and retail \u85rms, respectively, our model implies smoother wages because \u85rms can af-fect their marginal costs by adjusting prices. A consequence of smoother wages is that the vacancy-to-unemployment ratio responds much more than under the standard model. Additionally, our baseline model shows larger e¤ects of changing the ination target and smaller e¤ects of changing unemployment bene\u85ts. We also show that combining search and price frictions in one \u85rm leads to less volatility after technology shocks but more volatility after monetary policy shocks