Search and matching frictions and optimal monetary policy

Carlos Thomas

Journal of Monetary Economics, 2008, vol. 55, issue 5, 936-956

Abstract: A recent literature has merged the New Keynesian and the search and matching frameworks, which has allowed the former to analyze the joint dynamics of unemployment and inflation. This paper analyzes optimal monetary policy in this kind of hybrid framework. I show that zero inflation is optimal when all wages are Nash bargained in every period and the economy's steady state is efficient. In the more realistic case in which nominal wage bargaining is staggered, a case against price stability arises: in response to real shocks, the central bank should use price inflation so as to avoid excessive unemployment volatility and excessive dispersion in hiring rates. For a plausible calibration, the welfare loss under the zero inflation policy is about three times as large as under the optimal policy.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (187)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-3932(08)00045-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Search and Matching Frictions and Optimal Monetary Policy (2006)
Working Paper: Search and matching frictions and optimal monetary policy (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:55:y:2008:i:5:p:936-956

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().