Using dynamic stochastic general equilibrium models we study how different labor-market frictions interact to affect macroeconomic outcomes and optimal policy prescriptions. Specifically we are interested in structurally evaluating the aggregate effects of the interplay between wage rigidities and search and matching frictions on the labor market identified from linked micro data on firms and employees.
Using a workstation environment a version of the model for a first sub-project has been solved on a sparse grid. We now want to obtain a more precise solution, to this highly-non linear model, as well as doing a substantial robustness exercises with alternative calibrations of the model. In future work we want to develop the model to allow for additional features such as asymmetric wage rigidities.