Advanced Search
MyIDEAS: Login to save this paper or follow this series

Monetary policy and unemployment in open economies

Contents:

Author Info

  • Engler, Philipp

Abstract

After an expansionary monetary policy shock employment increases and unemployment falls. In standard New Keynesian models the fall in aggregate unemployment does not affect employed workers at all. However, Lüchinger, Meier and Stutzer (2010) found that the risk of unemployment negatively affects utility of employed workers: An increases in aggregate unemployment decreases workers' subjective well-being, which can be explained by an increased risk of becoming unemployed. I take account of this effect in an otherwise standard New Keynesian open economy model with unemployment as in Galí (2010) and find two important results with respect to expansionary monetary policy shocks: First, the usual wealth effect in New Keynesian models of a declining labor force, which is at odds with the data as highlighted by Christiano, Trabandt and Walentin (2010), is shut down. Second, the welfare effects of such shocks improve considerably, modifying the standard results of the open economy literature that set off with Obstfeld and Rogoff's (1995) redux model. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/54728/1/680587616.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2011/24.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:fubsbe:201124

Contact details of provider:
Postal: Garystr. 21, 14195 Berlin (Dahlem)
Phone: (030) 838 2272
Fax: (030) 838 2129
Email:
Web page: http://www.wiwiss.fu-berlin.de/en/index.html
More information through EDIRC

Related research

Keywords: open economy macroeconomics; monetary policy; unemployment;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Tervala, Juha, 2007. "The international transmission of monetary policy in a dollar pricing model," Research Discussion Papers, Bank of Finland 29/2007, Bank of Finland.
  2. Rafael Wouters & Frank Smets & Jordi Gali, 2011. "Unemployment in an Estimated New Keynesian model," 2011 Meeting Papers 1451, Society for Economic Dynamics.
  3. Bluedorn, John C. & Bowdler, Christopher, 2011. "The open economy consequences of U.S. monetary policy," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(2), pages 309-336, March.
  4. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 281-313, October.
  5. Ganelli , Giovanni & Tervala, Juha, 2009. "Public infrastructures, public consumption and welfare in a new open economy macro model," Research Discussion Papers, Bank of Finland 8/2009, Bank of Finland.
  6. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(424), pages 648-59, May.
  7. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  8. Giancarlo Corsetti & Paolo Pesenti, 1997. "Welfare and Macroeconomic Interdependence," NBER Working Papers 6307, National Bureau of Economic Research, Inc.
  9. Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3096, C.E.P.R. Discussion Papers.
  10. Mathias Trabandt & Karl Walentin & Lawrence J. Christiano, 2010. "Involuntary Unemployment and the Business Cycle," 2010 Meeting Papers, Society for Economic Dynamics 129, Society for Economic Dynamics.
  11. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  12. Bergin, Paul R., 2006. "How well can the New Open Economy Macroeconomics explain the exchange rate and current account?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 25(5), pages 675-701, August.
  13. Tervala, Juha & Engler, Philipp, 2010. "Beggar-thyself or beggar-thy-neighbour? The welfare effects of monetary policy," Discussion Papers 2010/6, Free University Berlin, School of Business & Economics.
  14. Christian Merkl & Dennis Wesselbaum, 2011. "Extensive versus intensive margin in Germany and the United States: any differences?," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(9), pages 805-808.
  15. Kevin X. D. Huang & Zheng Liu, 2003. "Business Cycles with Staggered Prices and International Trade in Intermediate Inputs," Emory Economics, Department of Economics, Emory University (Atlanta) 0308, Department of Economics, Emory University (Atlanta).
  16. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:fubsbe:201124. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.