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Incorporating Labour Market Frictions into an Optimizing Based Monetary Policy Model

Author

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  • Stéphane Moyen

    (Université d'Evry Val d'Essonne)

  • Jean-Guillaume Sahuc

    (Banque de France, Centre de Recherche)

Abstract

This paper examines the effects of introducing a non walrasian labour market into the "New Neoclassical Synthesis" framework. A dynamic stochastic general equilibrium model is formulated, solved and calibrated to evaluate its abilities to replicate the main features of the Euro area economy. This framework allows the respective roles of labour market rigidities, nominal rigidities, and policy inertia in accounting for the impact of monetary policy, technology, public spending and preference shocks to be studied. Our simulations show that: (i) real rigidities complement but not supplant nominal rigidities, (ii) the Beveridge and Phillips relations are reproduced, (iii) hours worked are a too crucial adjustment variable and (iv) the real wage dynamics is still procyclical.

Suggested Citation

  • Stéphane Moyen & Jean-Guillaume Sahuc, 2003. "Incorporating Labour Market Frictions into an Optimizing Based Monetary Policy Model," Documents de recherche 03-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:03-03
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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