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Monetary Policy, Job Flows and Unemployment in a Sticky Price Framework

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Author Info
Claudio Soto

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Abstract

The paper presents a general equilibrium model that combines a non-Walrasian labor market with firms setting prices on a staggered basis. The model is utilized to analyze the impact of different shocks on a set of variables under two alternative monetary policy rules. The main characteristic of the labor market is the existence of a search friction that results in a positive equilibrium rate of unemployment. Sticky prices, on the other hand, introduce a demand-sided transmission mechanism for the monetary policy that allows analysis of the effects of different shocks. The model is able to generate a positive correlation between inflation and employment (the Phillips curve) as well as the observed correlation pattern between job creation and employment and job destruction and employment. It also replicates the contemporaneous negative correlation between job creation and job destruction that is observed in the data.

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File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc219.pdf
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Publisher Info
Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 219.

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Date of creation: Aug 2003
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Handle: RePEc:chb:bcchwp:219

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  1. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October. [Downloadable!] (restricted)
  2. Nelson, E., 1998. "Sluggish inflation and optimizing models of the business cycle," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 303-322, July. [Downloadable!] (restricted)
  3. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April. [Downloadable!] (restricted)
  4. Olivier Jean Blanchard & Peter Diamond, 1990. "The Beveridge Curve," NBER Reprints 1405, National Bureau of Economic Research, Inc.
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  5. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  6. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  7. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  8. Cochrane, John H., 1998. "What do the VARs mean? Measuring the output effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 277-300, April. [Downloadable!] (restricted)
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  9. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November. [Downloadable!] (restricted)
  10. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June. [Downloadable!] (restricted)
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  11. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March. [Downloadable!] (restricted)
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