Labor market search, the Taylor principle, and indeterminacy

Kurozumi, Takushi; Zandweghe, Willem Van

doi:10.1016/j.jmoneco.2010.07.002

Cited by 14 publications

(25 citation statements)

References 25 publications

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“…Based on the results from our companion paper, we can safely concentrate only on the features that are critical for the transmission of matching e¢ ciency shocks and ignore the unnecessary complications. Our model is very similar to Kurozumi and Van Zandweghe (2010) in the version with pre-match hiring costs and is a simpli…ed version of Gertler, Sala and Trigari (2008) in the version with post-match hiring costs.…”

Section: The Modelmentioning

confidence: 99%

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Matching Efficiency and Business Cycle Fluctuations

Furlanetto¹,

Groshenny

2012

SSRN Journal

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A large decline in the e¢ ciency of the US labor market in matching unemployed workers and vacant jobs has been documented during the Great Recession. We use a simple New Keynesian model with search and matching frictions in the labor market to study the macroeconomic implications of matching e¢ ciency shocks. We show that the propagation of these disturbances and their importance for business cycle ‡uctuations depend crucially on the form of hiring costs and on the presence of nominal rigidities.

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Section: The Modelmentioning

confidence: 99%

“…The value of unemployment bene…ts is derived from the steady-state conditions. These choices are common in the literature and avoid indeterminacy issues that are widespread in this kind of model as shown byKurozumi and Van Zandweghe (2010) among others. Finally, the degree of persistence for the shock process is set at 0:6.…”

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confidence: 99%

Matching Efficiency and Business Cycle Fluctuations

Furlanetto¹,

Groshenny

2012

SSRN Journal

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“…4 4 In Kurozumi and Van Zandweghe (2010), we find that in a sticky price model without investment, labor market search and matching frictions almost always induce indeterminacy of equilibrium under inflation‐forecast targeting interest rate policy which satisfies the Taylor principle. …”

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confidence: 84%

Determinacy under Inflation Targeting Interest Rate Policy in a Sticky Price Model with Investment (and Labor Bargaining)

Kurozumi

Zandweghe

2011

Journal of Money, Credit and Banking

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In a sticky price model with investment spending, recent research shows that inflation-forecast targeting interest rate policy makes determinacy of equilibrium essentially impossible. We examine a necessary and sufficient condition for determinacy under interest rate policy that responds to a weighted average of an inflation forecast and current inflation. This condition demonstrates that the average-inflation targeting policy ensures determinacy as long as both the response to average inflation and the relative weight of current inflation are large enough. We also find that interest rate policy that responds solely to past inflation guarantees determinacy when its response satisfies the Taylor principle and is not large. These results still hold even when wages and hours worked are determined by Nash bargaining. JEL codes: E22, E24, E52 Keywords: inflation targeting interest rate policy, investment, indeterminacy of equilibrium, cost channel of monetary policy, labor bargaining.RECENT RESEARCH HAS shown that investment activity induces a critical implication for inflation targeting interest rate policy in sticky price models. Carlstrom and Fuerst (2005) derive a necessary condition for (local) determinacy of equilibrium in a Calvo-style (1983) sticky price model and find that inflation-forecast

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“…The model economy consists of a representative household, a continuum of intermediate good-producing …rms, a continuum of monopolistically competitive retail …rms, and monetary and …scal authorities that set monetary and …scal policy, respectively. The model is purposely simple and largely builds on Ravenna and Walsh (2008), Faia (2009), Furlanetto and Groshenny (2016a) and Kurozumi and Van Zandweghe (2010).…”

Section: The Modelmentioning

confidence: 99%

Structural Factors, Unemployment and Monetary Policy: The Useful Role of the Natural Rate of Interest

Furlanetto¹,

Gelain²

2016

SSRN Journal

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We study the role of monetary policy in response to variations in unemployment due to structural factors, modeled as exogenous changes in matching e¢ ciency and in the size of the labor force. We …nd that monetary policy should play a role in such a scenario. Both negative shocks to the matching e¢ ciency and negative shocks to the labor force increase in ‡ation, thus calling for an increase in the interest rate when policy is conducted following Taylor-type rules. However, the natural rate of interest declines in response to both shocks. The optimal Ramsey policy prescribes small deviations from price stability and lowers the interest rate, thus tracking the natural rate of interest in response to both shocks. Structural factors in the labor market may have contributed to the recent decline in the natural rate of interest in the US.

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Labor market search, the Taylor principle, and indeterminacy

Cited by 14 publications

References 25 publications

Matching Efficiency and Business Cycle Fluctuations

Matching Efficiency and Business Cycle Fluctuations

Determinacy under Inflation Targeting Interest Rate Policy in a Sticky Price Model with Investment (and Labor Bargaining)

Structural Factors, Unemployment and Monetary Policy: The Useful Role of the Natural Rate of Interest

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