Labor Selection, Turnover Costs, and Optimal Monetary Policy

Ester Faia, Wolfgang Lechthaler and Christian Merkl

Journal of Money, Credit and Banking, 2014, vol. 46, issue 1, 115-144

Abstract: We study optimal monetary policy and welfare properties of a dynamic stochastic general equilibrium (DSGE) model with a labor selection process, labor turnover costs, and Nash bargained wages. We show that our model implies inefficiencies that cannot be offset in a standard wage bargaining regime. We also show that the inefficiencies rise with the magnitude of firing costs. As a result, in the optimal Ramsey plan, the optimal inflation volatility deviates from zero and is an increasing function of firing costs.

Date: 2014
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https://doi.org/10.1111/jmcb.12099

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Working Paper: Labor selection, turnover costs and optimal monetary policy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:46:y:2014:i:1:p:115-144

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