Asymmetric Unemployment Fluctuations and Monetary Policy Trade-offs
Working Papers from HAL
I show that labor market asymmetries are key to generating a quantitatively significant trade-off between inflation and unemployment stabilization in New Keynesian models with search and matching frictions in the labor market. In such an environment, a strong focus on inflation stabilization in response to shocks comes at the cost of larger labor market volatility. Because unemployment fluctuations are asymmetric, it also results in higher average unemployment. The optimal policy responds strongly to both inflation and employment and stabilizes labor market fluctuations. Most of the welfare gains from adopting this policy are accounted for by the increase in average employment relative to the price stability case. When labor market fluctuations are linear, the monetary authority loses its leverage over average unemployment, and a policy of price stability is close to optimal.
Keywords: Matching frictions; Optimal monetary policy; Unemployment Asymmetries (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01536416v2
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Journal Article: Asymmetric Unemployment Fluctuations and Monetary Policy Trade-Offs (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-01536416
Access Statistics for this paper
More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().