Labor Market Frictions and Optimal Monetary Policy

Alon Binyamini ()
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Alon Binyamini: Bank of Israel

No 2013.02, Bank of Israel Working Papers from Bank of Israel

Abstract: We study the properties of optimal monetary policy in an environment of nominal wage rigidity and unemployment. We show that nominal wage rigidity increases the sacrice ratio, and therefore reduces the eâ„ectiveness of sacricing employment in order to stabilize ination. It follows that in response to higher nominal wage rigidity, it is optimal to allow for smaller uctuations of unemployment at the expense of larger ination uctuations.

Keywords: Search; Matching; Business cycles; Monetary policy (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 J64 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2013-01
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