Incorporating labour market frictions into an optimising-based monetary policy model

Moyen, Stéphane; Sahuc, Jean‐Guillaume

doi:10.1016/j.econmod.2004.06.001

Cited by 50 publications

(23 citation statements)

References 27 publications

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“…The failure of some nominal wages to adjust creates a gap between the actual and the Nash average real wage. To see this, I can combine (37) and (42) and impose t = 0 to express the average real wage as a weighted average of its own lag, its expected lead and the Nash wage,…”

Section: Policy Trade-o¤smentioning

confidence: 99%

“…Continuing with the example of a negative shock, the central bank should allow for a temporary increase in in ‡ation. This way, by equation (37) it can accelerate the convergence of real wages towards their Nash counterparts. Since actual wages are then closer to their targets, renegotiating …rms will cut their nominal wages by less, thus reducing wage dispersion.…”

Section: Policy Trade-o¤smentioning

confidence: 99%

“…Figure 1 plot the economy's response to a 1 per cent negative productivity shock. 37 The fall in the marginal product of jobs reduces the Nash wage on impact. Given that the Nash wage is the target in wage negotiations, nominal wages in renegotiating …rms fall accordingly.…”

Section: Calibrationmentioning

confidence: 99%

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Search and matching frictions and optimal monetary policy

Thomas

2008

Journal of Monetary Economics

160

152

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I analyze optimal monetary policy in an economy with search and matching frictions in the labor market and staggered nominal wage and price contracts. In this framework, as opposed to the standard New Keynesian model, preset nominal wages need not have any effect on existing employment relationships. However, staggered bargaining of nominal wages distorts aggregate job creation and creates inefficient dispersion in hiring rates across firms. Targeting zero inflation (the optimal policy in the standard New Keynesian model) only magnifies these distortions. The optimal policy allows for non-zero inflation in response to real shocks, so as to reduce the rigidity of real wages. Quantitatively, the case against price stability as the sole goal of monetary policy turns out to be important.

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Section: Policy Trade-o¤smentioning

confidence: 99%

Section: Policy Trade-o¤smentioning

confidence: 99%

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Search and matching frictions and optimal monetary policy

Thomas

2008

Journal of Monetary Economics

160

152

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“…E¢ cient output (i.e., the …rst best level of output) is: y t = a t , and therefore an increase in productivity will increase e¢ cient output by the same amount. As we can see from equation (36) natural output (i.e. the level of output that would prevail in a ‡exible price equilibrium with a dual labor market) increases more than the e¢ cient one.…”

Section: The Endogenous Trade-o¤ Between In ‡Ation and Output Gapmentioning

confidence: 94%

Optimal monetary policy in economies with dual labor markets

Mattesini

Rossi

2009

Journal of Economic Dynamics and Control

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We present a DSGE New Keynesian model with indivisible labor and a dual labor market: a walrasian one where wages are fully ‡exible and a unionized one charaterized by real wage rigidity. We show that the negative e¤ect of a productivity shock on in ‡ation and the positive e¤ect of a cost-push shock are crucially determined by the proportion of …rms that belong to the unionized sector. The larger this number, the larger are these e¤ects. Consequently, the larger the union coverage, the larger should be the optimal response of the nominal interest rate to exogenous productivity and cost-push shocks. The optimal in ‡ation and output gap volatility increases as the number of the unionized …rms in the economy increases. JEL codes: E24, E32, E50, J23, J51

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“…Consequently, the two total derivatives (25) and (26) are identical except for the sign and the optimality condition for the wage bargain simply states that the ratio of household/…rm intertemporal surpluses is equal to their relative bargaining power. From this expression, it is clear that the competitive price of labor t only depends on hours worked and the marginal utility of consumption.…”

Section: Wage and Hours Bargainingmentioning

confidence: 99%

Sequential Bargaining in a New Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation

et al. 2009

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Sequential Bargaining in a New-Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation *We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers' bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers' bargaining power for wages and (iii) the more important the hourly wage in the marginal cost determination. This set-up produces realistic labor market statistics together with inflation persistence. Distinguishing the probability to bargain the wage of the existing and the new jobs, we show that the intensive margin helps reduce the new entrants wage rigidity required to match observed unemployment volatility. JEL Classification:E31, E32, E52, J64

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Incorporating labour market frictions into an optimising-based monetary policy model

Cited by 50 publications

References 27 publications

Search and matching frictions and optimal monetary policy

Search and matching frictions and optimal monetary policy

Optimal monetary policy in economies with dual labor markets

Sequential Bargaining in a New Keynesian Model with Frictional Unemployment and Staggered Wage Negotiation

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