Insider–outsider labor markets, hysteresis, and monetary policy
I develop a version of the New Keynesian model with insider-outsider 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)em...
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| Format: | article |
| Status: | Versión aceptada para publicación |
| Publication Date: | 2022 |
| Country: | España |
| Institution: | Universitat Pompeu Fabra |
| Repository: | Repositorio Digital de la UPF |
| OAI Identifier: | oai:repositori.upf.edu:10230/70422 |
| Online Access: | http://hdl.handle.net/10230/70422 http://dx.doi.org/10.1111/jmcb.12898 |
| Access Level: | Open access |
| Keyword: | Wage stickiness New Keynesian model Unemployment fluctuations Wage Phillips curve Monetary policy tradeoffs |
| Summary: | I develop a version of the New Keynesian model with insider-outsider 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 e¤ects of di¤erent policies are analyzed through the lens of the labor wedge and its components. |
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