Labor Market Search, Sticky Prices, and Interest Rate Policies

Carl Walsh

Review of Economic Dynamics, 2005, vol. 8, issue 4, 829-849

Abstract: What accounts for the significant real effects of monetary policy shocks? And what accounts for the persistent and hump shaped responses of output and inflation in response to such shocks? These questions are investigated in a model that incorporates labor market search, habit persistence, sticky prices, and policy inertia. While habit persistence and price stickiness are important for the hump shaped output response and the long, drawn out inflation response, respectively, labor market frictions increase the output response and reduce the inflation response relative to an otherwise similar model based on a Walrasian labor market. Significantly, policy inertia itself is found to be the most important factor in accounting for the magnitude of the output effects of policy shocks in the model. (Copyright: Elsevier)

Keywords: Monetary policy; Labor market search (search for similar items in EconPapers)
JEL-codes: E52 E58 J64 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (317)

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Working Paper: Labor Market Search, Sticky Prices, and Interest Rate Policies (2003)
Working Paper: Labor Market Search, Sticky Prices, and Interest Rate Policies (2003)
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DOI: 10.1016/j.red.2005.03.004

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