IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimal Monetary Policy in Response to Shifts in the Beveridge Curve

  • Mariya Mileva
Registered author(s):

    I build a dynamic stochastic general equilibrium model with search and matching frictions in the labor market and analyze the optimal monetary policy response to an outward shift in the Beveridge curve. The results cover several cases depending on the reason for the shift. If the shift is due to a fall in the efficiency of matching, then the optimal response of the central bank is to stabilize inflation. On the other hand, if the shift arises from an increase in the elasticity of employment matches with respect to vacancies, then the policy maker faces a trade off between stabilizing inflation and unemployment. The optimal policy response to the efficient labor market shock changes when real wages are sticky but remains unchanged when home and market goods are imperfect substitutes, compared to the case when they are not. When contrasted to a Taylor rule that targets inflation and output growth, the optimal monetary policy is more aggressive in pursuit of its objectives

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://www.ifw-members.ifw-kiel.de/publications/optimal-monetary-policy-in-response-to-shifts-in-the-beveridge-curve/Mariya%20Mileva%20KWP%201823.pdf
    Download Restriction: no

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1823.

    as
    in new window

    Length: 30 pages
    Date of creation: Mar 2013
    Date of revision:
    Handle: RePEc:kie:kieliw:1823
    Contact details of provider: Postal: Kiellinie 66, D-24105 Kiel
    Phone: +49 431 8814-1
    Fax: +49 431 85853
    Web page: http://www.ifw-kiel.deEmail:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Jordi Galí & Thijs van Rens, 2008. "The vanishing procyclicality of labor productivity," Economics Working Papers 1230, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2010.
    2. Kai Christoffel & Keith Kuester & Tobias Linzert, 2009. "The Role of Labor Markets for Euro Area Monetary Policy," Kiel Working Papers 1513, Kiel Institute for the World Economy.
    3. Federico Ravenna & Carl E. Walsh, 2011. "Welfare-Based Optimal Monetary Policy with Unemployment and Sticky Prices: A Linear-Quadratic Framework," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 130-62, April.
    4. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    5. Jinzhu Chen & Bharat Trehan & Prakash Kannan & Prakash Loungani, 2011. "New Evidenceon Cyclical and Structural Sources of Unemployment," IMF Working Papers 11/106, International Monetary Fund.
    6. Faia, Ester, 2008. "Optimal monetary policy rules with labor market frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1600-1621, May.
    7. Blanchard, Olivier J & Galí, Jordi, 2008. "Labour Markets and Monetary Policy: A New Keynesian Model with Unemployment," CEPR Discussion Papers 6765, C.E.P.R. Discussion Papers.
    8. Alexander M. Gelber & Joshua W. Mitchell, 2009. "Taxes and Time Allocation: Evidence from Single Women," NBER Working Papers 15583, National Bureau of Economic Research, Inc.
    9. Thomas, Carlos, 2008. "Search and matching frictions and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 936-956, July.
    10. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger, 2010. "The Establishment-Level Behavior of Vacancies and Hiring," NBER Working Papers 16265, National Bureau of Economic Research, Inc.
    11. Regis Barnichon & Andrew Figura, 2011. "What drives matching efficiency? a tale of composition and dispersion," Finance and Economics Discussion Series 2011-10, Board of Governors of the Federal Reserve System (U.S.).
    12. Sala, Luca & Söderström, Ulf & Trigari, Antonella, 2008. "Monetary Policy Under Uncertainty in an Estimated Model with Labour Market Frictions," CEPR Discussion Papers 6826, C.E.P.R. Discussion Papers.
    13. Kenneth Beauchemin & Murat Tasci, 2007. "Diagnosing labor market search models: a multiple-shock approach," Working Paper 0720, Federal Reserve Bank of Cleveland, revised 30 Dec 2007.
    14. Karabarbounis, Loukas, 2010. "Labor wedges and open economy puzzles," MPRA Paper 31370, University Library of Munich, Germany.
    15. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
    16. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer, vol. 6(1), pages 179-93, June.
    17. Faia, Ester, 2009. "Ramsey monetary policy with labor market frictions," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 570-581, May.
    18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:kie:kieliw:1823. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dieter Stribny)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.