Optimal monetary policy rules with labor market frictions

Faia, Ester

doi:10.1016/j.jedc.2007.06.011

Cited by 109 publications

(97 citation statements)

References 32 publications

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“…In a related paper, though within a DSGE framework, Faia (2006) performs similar experiments which are all in all in line with our findings. There is though one important difference between her conclusions and ours: Since in her framework the evolution of the real marginal costs depend solely on unemployment, targeting the output gap is suboptimal towards targeting the unemployment gap, since the latter is the variable which comprises the source of the inefficiency in the economy.…”

Section: Output Stabilization and Monetary Policy Rulessupporting

confidence: 89%

Gradual wage-price adjustments, labor market frictions and monetary policy rules

Proaño

2012

Journal of Economic Behavior & Organization

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Contrary to the assumption of perfectly flexible labor markets commonly used in mainstream macroeconomic models, in the real world the existence of structural imperfections such as search and trading costs hinder the frictionless functioning of these markets, generally leading to outcomes of Non-Walrasian type with involuntary unemployment and open vacancies in "equilibrium". In this paper we model the existence of labor market frictions into a Keynesian (Disequilibrium) AS-AD framework in the line of Asada, Chen, Chiarella and Flaschel (2006) through a labor search and matching function. By means of dynamic shock simulations, we find that the extent of the labor market rigidity has a great importance for the dynamics not only of employment and output, but also of wage and price inflation, and consequently also for the conduction of monetary policy.-------

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Section: Output Stabilization and Monetary Policy Rulessupporting

confidence: 89%

Gradual wage-price adjustments, labor market frictions and monetary policy rules

Proaño

2012

Journal of Economic Behavior & Organization

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“…It instead chooses allocations in order to maximize the welfare of individuals. One may also consider the case where the monetary authority chooses allocations subject to an interest-rate rule, as for example has been assumed in Faia (2008 …”

Section: The Private Sector Equilibriummentioning

confidence: 99%

“…Arseneau andChugh, 2008 andFaia, 2008). The parameter m  measures the efficiency of the matching process and it is calibrated in my benchmark case to be 9 Previous studies considered elasticity between 0.1 and 1, corresponding to values of 10 and 1 for  , respectively.…”

Section: Parameterizationmentioning

confidence: 99%

Optimal Monetary Policy and Downward Nominal Wage Rigidity in Frictional Labor Markets

Abo-Zaid

2010

SSRN Journal

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Recent empirical evidence suggests that nominal wages in the U.S. are downwardly rigid. This paper studies optimal monetary policy in a labor search and matching framework under the presence of Downward Nominal Wage Rigidity (DNWR). The study shows that when nominal wages are downwardly rigid, optimal monetary policy targets a positive inflation rate; the annual long-run inflation rate is around 2 percent. Positive inflation in this environment "greases the wheels" of the labor market by facilitating real wage adjustments, and hence it eases job creation and prevents excessive increase in unemployment. In addition, there is an asymmetry in the response of the economy to positive and negative productivity shocks, particularly those of large sizes. Finally, the optimal long-run inflation rate predicted by this study is considerably higher than in otherwise neoclassical labor markets, suggesting that the nature of the labor market in which DNWR is studied can matter for policy recommendations.

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“…The Taylor rule response to unemployment addresses the trade off between unemployment and inflation for monetary policy under labor market frictions (see Blanchard and Galí, 2010, Faia, 2008, or Faia et al, 2014.…”

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confidence: 99%

Fiscal Rules and Unemployment

Gehrke

2018

Macroecon. Dynam.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. and consumption tax cuts are substantial, even though output multipliers turn out to be less than one. Second, multipliers for labor tax cuts are small. Third, fiscal rules enhance the positive effects of discretionary fiscal policy. However, these expansionary effects on the multipliers are modest compared to earlier studies. Terms of use: Documents in EconStor mayJEL Classification: E62, J20, C11

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Optimal monetary policy rules with labor market frictions

Cited by 109 publications

References 32 publications

Gradual wage-price adjustments, labor market frictions and monetary policy rules

Gradual wage-price adjustments, labor market frictions and monetary policy rules

Optimal Monetary Policy and Downward Nominal Wage Rigidity in Frictional Labor Markets

Fiscal Rules and Unemployment

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