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reaction model for a Central Bank against shocks on labor market - Part I

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  • Martin, José Manuel

Abstract

There’s a practical rule in financial and monetary economics: if unemployment rises, the economy needs stimulus, therefore, interest rates will fall. This rule of thumb is derived from the Phillips Curve and the Taylor rule. However, this effect is not formally included in those models. Thus, with small adjustments to the Phillips Curve and Taylor’s rule framework one can include the impact of shocks and expectations in the labor market, to overcome shocks on inflation and to improve the adjustments of central bank’s interest rate.

Suggested Citation

  • Martin, José Manuel, 2020. "reaction model for a Central Bank against shocks on labor market - Part I," MPRA Paper 108128, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:108128
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    More about this item

    Keywords

    Econometrics; Central Bank; Inflation;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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