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Incorporating Labour Market Frictions into an Optimising-Based Monetary Policy Model

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  • Moyen, S.
  • Sahuc, J-G.

Abstract

This paper examines the effects of introducing a non Walrasian labour market into the "New Neoclassical Synthesis'' framework. A dynamic stochastic general equilibrium model is formulated, solved, and calibrated in order to evaluate its ability to replicate the main features of the Euro area economy. This framework allows us to study the effects of labour market rigidities, nominal rigidities, and other frictions to give account of the impact of monetary policy, technology, public spending, and preference shocks. Our simulations show that: (i) real rigidities complement but do not supplant nominal rigidities, (ii) the Beveridge and Phillips relations are reproduced, (iii) hours worked are too sensitive an adjustment variable, and (iv) the real wage dynamics is still procyclical.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 105.

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Length: 42 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:bfr:banfra:105

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Keywords: DSGE models ; Nominal rigidities ; Real rigidities ; Labour market ; Endogenous persistence ; Euro area;

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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
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  9. Jean-Guillaume Sahuc, 2002. "A 'hybrid' monetary policy model: evidence from the Euro area," Applied Economics Letters, Taylor & Francis Journals, vol. 9(14), pages 949-955.
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  18. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
  19. Robert Shimer, 2003. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies: Evidence and Theory," NBER Working Papers 9536, National Bureau of Economic Research, Inc.
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