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Labor mobility in a monetary union

Daniela Hauser () and Martin Seneca

Journal of International Economics, 2022, vol. 137, issue C

Abstract: Internal migration flows are endogenously driven by relative labor market performance in a New Keynesian DSGE model of a monetary union calibrated to U.S. data. When labor markets are competitive, a strict focus on stabilizing unionwide inflation remains close to optimal. With search and matching frictions in regional labor markets, labor mobility across state borders introduces additional trade-offs for optimal monetary policy since workers do not internalize the full effects of their individual migration decisions. But when monetary policy is suboptimal, a mobile labor force helps to close inefficiency gaps in regional labor markets following region-specific shocks. Putting some weight on labor market outcomes in a simple instrument rule enhances welfare more when labor is mobile.

Keywords: Labor mobility; Monetary policy; Monetary union; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 E52 F45 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Labor Mobility in a Monetary Union (2019) Downloads
Working Paper: Labor mobility in a monetary union (2019) Downloads
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DOI: 10.1016/j.jinteco.2022.103600

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