Monetary policy and labor market frictions: A tax interpretation

Federico Ravenna and Carl Walsh

Journal of Monetary Economics, 2012, vol. 59, issue 2, 180-195

Abstract: Replicating the flexible price allocation in models with nominal rigidities and labor market frictions that lead to an inefficient matching of unemployed workers with job vacancies, even if feasible, is generally not desirable. We characterize the tax instruments that implement the first best allocation and examine the trade-offs faced by monetary policy if these tax instruments are unavailable. Our tax interpretation helps explain why the welfare cost of inefficient labor market search can be large while the incentive to deviate from price stability is small. Gains from deviating from price stability are larger in economies with more volatile labor flows.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393212000190
Full text for ScienceDirect subscribers only

Related works:
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:59:y:2012:i:2:p:180-195

DOI: 10.1016/j.jmoneco.2012.01.003

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 ().