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Monetary Persistence and the Labor Market: A New Perspective Author info | Abstract | Publisher info | Download info | Related research | Statistics Lechthaler, Wolfgang () (Kiel Institute for the World Economy)
Merkl, Christian () (Kiel Institute for the World Economy)
Snower, Dennis J. () (Kiel Institute for the World Economy)
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It is common knowledge that the standard New Keynesian model is not able to generate a persistent response in output to temporary monetary shocks. We show that this shortcoming can be remedied in a simple and intuitively appealing way through the introduction of labor turnover costs (such as hiring and firing costs). Assuming that it is costly to hire and fire workers implies that the employment rate is slow to converge to its steady state value after a monetary shock. The after-effects of a shock continue to exert an effect on the labor market even long after the shock is over. The sluggishness of the labor market translates to the product market and thus the output effects of the monetary shock become more persistent. Under reasonable calibrations our model generates hump-shaped output responses. In addition, it is able to replicate the Beveridge curve relationship and a negative correlation between job creation and job destruction.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
3513.
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Length: 29 pages
Date of creation: May 2008Date of revision:
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Keywords: monetary persistence ; labor market ; hiring and firing costs ; Other versions of this item:
Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
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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.)
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