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Should Monetary Policy Take Account of National Labor Market Asymmetries in a Currency Union?

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  • Christian R. Proaño

    () (Department of Economics, New School for Social Research)

Abstract

This paper investigates the design of optimal monetary policy in a currency union with asymmetric national labor markets. For this purpose a stylized theoretical two-country model is introduced where the occurrence of inflation differentials is a reflection of asymmetries in the labor market flexibility between the two countries. Through numerical simulations it is shown that a larger weight of the country with the more sclerotic labor market in the loss function of the monetary union's central bank is more advantageous at the monetary union's level than a simple weighting scheme based on the relative economic size of both countries.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Christian R. Proaño, 2011. "Should Monetary Policy Take Account of National Labor Market Asymmetries in a Currency Union?," Working Papers 1114, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1114
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    File URL: http://www.economicpolicyresearch.org/econ/2011/NSSR_WP_142011.pdf
    File Function: First version, 2011
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    Keywords

    MOnetary policy; labor market rigidities; monetary unions;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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