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Sectoral Labor Mobility and Optimal Monetary Policy

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  • Mr. Giovanni Melina
  • Mr. Alessandro Cantelmo

Abstract

In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.

Suggested Citation

  • Mr. Giovanni Melina & Mr. Alessandro Cantelmo, 2017. "Sectoral Labor Mobility and Optimal Monetary Policy," IMF Working Papers 2017/040, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2017/040
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    More about this item

    Keywords

    WP; durable goods; Optimal monetary policy; labor mobility; DSGE; nondurable goods; monetary policy rule; durables inflation; sectoral price markup shock; inflation composite; substitution durable goods; monetary policy stance; costs durable goods; Inflation; Sticky prices; Wages;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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