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Labor Market Participation, Unemployment and Monetary Policy

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  • Alessia Campolmi

    ()
    (Central European University; Magyar Nemzeti Bank (central bank of Hungary))

  • Stefano Gnocchi

    ()
    (Universitat Autonoma de Barcelona)

Abstract

In the present paper we examine how the introduction of endogenous participation in an otherwise standard DSGE model with matching frictions and nominal rigidities affects business cycle dynamics and monetary policy. The contribution of the paper is threefold: first, we show that the model provides a good fit for employment and unemployment volatility, as well as participation volatility and its correlation with output for US data. Second, we show that in such a model, and contrary to a model with exogenous participation, a monetary authority that becomes more aggressive in fighting inflation decreases the volatility of employment and unemployment. Finally, we show the role of search costs in shaping those results.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2011/4.

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Length: 46 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mnb:wpaper:2011/4

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Keywords: matching frictions; endogenous participation; monetary policy;

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Cited by:
  1. Alessia Campolmi & Ester Faia & Roland Winkler, 2011. "Fiscal Calculus in a New Keynesian Model with Labor Market Frictions," MNB Working Papers 2011/5, Magyar Nemzeti Bank (the central bank of Hungary).

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