Unemployment, Inflation and Monetary Policy in a Dynamic New Keynesian Model with Hiring Costs

Mirko Abbritti (), Andrea Boitani () and Mirella Damiani

MPRA Paper from University Library of Munich, Germany

Abstract: The dynamic general equilibrium model with hiring costs presented in this paper delivers involuntary unemployment in the steady state and involuntary fluctuations in unemploy- ment. After calibrating the model, through simulations we are able to show that our model with labour market imperfections outperforms the standard NK model as for the persis- tence of responses to monetary shocks. Besides, the model can be easily used to assess the impact of di¤erent market imperfections on both the steady state and the dynamics of the economy. We are also able to show how two economies, differing in their degrees of imperfection, react to policy or non policy shocks: a rigid economy turns out to be less volatile than a flexible economy. Something that reflects the actual experience of the US (flexible) and European (rigid) economies.

Keywords: Hiring Costs; Wage bargaining; Output Gap; New Keynesian Phillips Curve; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E24 J64 E32 E31 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: Written 2006-09
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Related works:
Working Paper: Unemployment, Inflation and Monetary Policy in a Dynamic New Keynesian Model with Hiring Costs (2007)
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