Paper #1506

Títol:

Insider-outsider labor markets, hysteresis and monetary policy

Autor:

Jordi Galí

Data:

Setembre 2015

Resum:

I develop a version of the New Keynesian model with insideroutsider labor markets and hysteresis that can account for the high persistence of European unemployment. I study the implications of that environment for the design of monetary policy. The optimal policy calls for strong emphasis on (un)employment stabilization which a standard interest rate rule fails to deliver, with the gap between the two increasing in the degree of hysteresis. Two simple targetiing rules are shown to approximate well the optimal policy. The properties of the model and effects of different policies are analyzed through the lens of the labor wedge and its components.

Paraules clau:

wage stickiness, New Keynesian model, unemployment fluctuations, Phillips curve, monetary policy tradeoffs.

Codis JEL:

E24, E31, E32.

Àrea de Recerca:

Macroeconomia i Economia Internacional

Publicat a:

Journal of Money, Credit and Banking 54(S1), 53-88, 2022.

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