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Employment, hours and optimal monetary policy

Maarten Dossche (), Vivien Lewis () and Céline Poilly ()

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: We characterize optimal monetary policy in a New Keynesian search-and-matching model where multiple-worker firms satisfy demand in the short run by adjusting hours per worker. Imperfect product market competition and search frictions reduce steady state hours per worker below the efficient level. Bargaining results in a convex wage curve’ linking wages to hours. Since the steady-state real marginal wage is low, wages respond little to hours. As a result, firms overuse the hours margin at the expense of hiring, which makes hours too volatile. The Ramsey planner uses inflation as a instrument to dampen inefficient hours fluctuations.

Date: 2014-06
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Related works:
Working Paper: Employment, hours and optimal monetary policy (2015) Downloads
Working Paper: Employment, hours and optimal monetary policy (2014) Downloads
Working Paper: Employment, hours and optimal monetary policy (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces14.16

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