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Labor Selection, Turnover Costs, and Optimal Monetary Policy

Listed author(s):
  • ESTER FAIA
  • WOLFGANG LECHTHALER
  • CHRISTIAN MERKL

We study optimal monetary policy and welfare properties of a dynamic stochastic general equilibrium (DSGE) model with a labor selection process, labor turnover costs, and Nash bargained wages. We show that our model implies inefficiencies that cannot be offset in a standard wage bargaining regime. We also show that the inefficiencies rise with the magnitude of firing costs. As a result, in the optimal Ramsey plan, the optimal inflation volatility deviates from zero and is an increasing function of firing costs.

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File URL: http://hdl.handle.net/10.1111/jmcb.2014.46.issue-1
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 46 (2014)
Issue (Month): 1 (02)
Pages: 115-144

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Handle: RePEc:wly:jmoncb:v:46:y:2014:i:1:p:115-144
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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