Labor market participation, unemployment and monetary policy

Alessia Campolmi and Stefano Gnocchi

Journal of Monetary Economics, 2016, vol. 79, issue C, 17-29

Abstract: Models of unemployment and monetary policy usually assume constant participation. Incorporating a participation decision into a standard New Keynesian model with matching frictions, we show that market tightness becomes endogenously more volatile because both the opportunity cost of home production and the reservation wage vary with participation. The model can simultaneously explain the low volatility of participation, the high volatility of unemployment, and a procyclical workers׳ outside option of working. A policy of strict inflation targeting is close to optimal, and increasing the response of the interest rate to inflation does not have a large impact on the volatility of unemployment because of the endogenous response of participation.

Keywords: Matching frictions; Endogenous participation; Monetary policy (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393216300010
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Labor Market Participation, Unemployment and Monetary Policy (2014)
Working Paper: Labor Market Participation, Unemployment and Monetary Policy (2011)
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:79:y:2016:i:c:p:17-29

DOI: 10.1016/j.jmoneco.2016.03.001

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 ().