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Labor Market Participation, Unemployment and Monetary Policy

  • Alessia Campolmi
  • Stefano Gnocchi

We incorporate a participation decision in a standard New Keynesian model with matching frictions and show that treating the labor force as constant leads to incorrect evaluation of alternative policies. We also show that the presence of a participation margin mitigates the Shimer critique.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2014/03/wp2014-9.pdf
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Paper provided by Bank of Canada in its series Staff Working Papers with number 14-9.

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Length: 59 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:bca:bocawp:14-9
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Web page: http://www.bank-banque-canada.ca/

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  17. Walsh, Carl E., 2003. "Labor Market Search, Sticky Prices, and Interest Rate Policies," Santa Cruz Center for International Economics, Working Paper Series qt6tg550dv, Center for International Economics, UC Santa Cruz.
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  23. Regis Barnichon & Andrew Figura, 2010. "What drives movements in the unemployment rate? a decomposition of the Beveridge curve," Finance and Economics Discussion Series 2010-48, Board of Governors of the Federal Reserve System (U.S.).
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  26. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
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