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Labor Market Search, Sticky Prices, and Interest Rate Policies

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Author Info
Carl E. Walsh (University of California, Santa Cruz)

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Abstract

What accounts for the significant real effects of monetary policy shocks? And what accounts for the persistent and hump shaped responses of output and inflation in response to such shocks? These questions are investigated in a model that incorporates labor market search, habit persistence, sticky prices, and policy inertia. While habit persistence and price stickiness are important for the hump shaped output response and the long, drawn out inflation response, respectively, labor market frictions increase the output response and reduce the inflation response relative to an otherwise similar model based on a Walrasian labor market. Significantly, policy inertia itself is found to be the most important factor in accounting for the magnitude of the output effects of policy shocks in the model. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.03.004
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 4 (October)
Pages: 829-849
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Handle: RePEc:red:issued:v:8:y:2005:i:4:p:829-849

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Related research
Keywords: Monetary policy Labor market search

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David M. Arseneau & Sanjay K. Chugh, 2008. "Competitive search equilibrium in a DSGE model," International Finance Discussion Papers 929, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. David M. Arseneau & Sanjay K. Chugh, 2006. "Ramsey meets Hosios: the optimal capital tax and labor market efficiency," International Finance Discussion Papers 870, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. Vincent Bodart & Gregory De Walque & Olivier Pierrard & Henri R. Sneessens & Raf Wouters, 2006. "Nominal Wage Rigidities in a New Keynesian Model with Frictional Unemployment," IZA Discussion Papers 2528, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Mirko Abbritti, 2007. "Unemployment, Inflation and Monetary Policy in a Dynamic New Keynesian Model with Hiring Costs," HEI Working Papers 07-2007, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
    Other versions:
  5. Sergio A. Lago Alves & Mirta N. S. Bugarin, 2006. "The Role of Consumer's Risk Aversion on Price Rigidity," Working Papers Series 121, Central Bank of Brazil, Research Department. [Downloadable!]
    Other versions:
  6. Blanchard, Olivier J & Galí, Jordi, 2005. "Real Wage Rigidities and the New Keynesian Model," CEPR Discussion Papers 5375, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Mark Gertler & Antonella Trigari, 2007. "Unemployment Fluctuation with Staggered Nash Wage Bargaining," CFS Working Paper Series 2007/09, Center for Financial Studies. [Downloadable!]
    Other versions:
  8. Francesco Zanetti, 2003. "Non-Walrasian Labor Market and the European Business Cycle," Boston College Working Papers in Economics 574, Boston College Department of Economics, revised 20 May 2004. [Downloadable!]
  9. Francesco Zanetti, . "Labour market institutions and aggregate fluctuations in a search and matching model," Bank of England working papers 333, Bank of England. [Downloadable!]
  10. Federico Ravenna & Carl E. Walsh, 2007. "Vacancies, Unemployment, and the Phillips Curve," Kiel Working Papers 1362, Kiel Institute for the World Economy. [Downloadable!]
  11. Juuso Vanhala, 2006. "Labor Taxation, Matching and Shocks in the New Keynesian Model," Computing in Economics and Finance 2006 346, Society for Computational Economics. [Downloadable!]
  12. Julio J. Rotemberg, 2006. "Cyclical Wages in a Search-and-Bargaining Model with Large Firms," NBER Working Papers 12415, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Fabrizio Mattesini & Lorenza Rossi, 2007. "Productivity shocks and Optimal Monetary Policy in a Unionized Labor Market Economy," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0072, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE). [Downloadable!]
    Other versions:
  14. Tillmann, Peter, 2005. "The New Keynesian Phillips Curve in Europe : does it fit or does it fail?," Discussion Paper Series 1: Economic Studies 2005,04, Deutsche Bundesbank, Research Centre. [Downloadable!]
  15. Carlos Thomas, 2006. "Search and Matching Frictions and Optimal Monetary Policy," CEP Discussion Papers dp0743, Centre for Economic Performance, LSE. [Downloadable!]
  16. Monique Ebell & Christian Haefke, 2002. "Product Market Deregulation and Labor Market Outcomes," Working Papers 02.08, Swiss National Bank, Study Center Gerzensee. [Downloadable!]
    Other versions:
  17. Antonella Trigari, . "The Role of Search Frictions and Bargaining for Inflation Dynamics," Working Papers 304, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  18. Mirko Abbritti; Sebastian Weber, 2008. "Labor Market Rigidities and the Business Cycle: Price vs. Quantity Restricting Institutions," HEI Working Papers 01-2008, Economics Section, The Graduate Institute of International Studies, revised Jan 2008. [Downloadable!]
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