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Three Unemployment Rates Relevant To Monetary Policy

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  • Croitoru, Lucian

    (The National Bank of Romania, the Romanian Centre for Economic Policies, the International Business and Economics Faculty, Academy of Economic Studies)

Abstract

We construct a Neo-Keynesian model, with a standard utility specification and nominal rigidities, in which monopolistic firms have employment-related norms and the wage bargaining power is variable. Due to norms, firms hire workers in excess of the number of employees required by technology. Workers in excess are efficiency reserves of the firms. We present the implications for the unemployment-inflation trade-off. We show that, with norms and variable bargaining power, besides the natural rate of unemployment, the unemployment rate at which firms establish/cancel norms, and the one at which the labor bargaining power reach maximum are relevant to decision making We show that, in the presence of norms, the response of the unemployment rate to a change in the monetary policy stance is relatively large, and temporarily concomitant increases in the unemployment rate and inflation can occur.

Suggested Citation

  • Croitoru, Lucian, 2011. "Three Unemployment Rates Relevant To Monetary Policy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 213-238, September.
  • Handle: RePEc:rjr:romjef:v::y:2011:i:3:p:213-238
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    References listed on IDEAS

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    Cited by:

    1. Diaconescu Diana Raluca & Botezatu Hortensia Paula, 2015. "National Bank Of Romania Monetary Policy Transmission Mechanism During The Crisis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 327-333, April.
    2. Florin Marian BUHOCIU, 2014. "Qualitative Analysis Of The Evolution Of Romanian Economy In 2013 And Valuations For 2014," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 50-54.

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