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Gains from Wage Flexibility and the Zero Lower Bound

Roberto Billi and Jordi Galí ()
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Jordi Galí: CREI, UPF and Barcelona GSE

No 367, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We analyze the welfare impact of greater wage exibility while taking into account explicitly the existence of the zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage exibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the presence of the ZLB implies that an increase in wage exibility reduces welfare even under the optimal monetary policy with commitment.

Keywords: labor market exibility; nominal rigidities; optimal monetary policy with commitment; Taylor rule; ZLB (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019-03-01
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge and nep-mac
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Related works:
Working Paper: Gains from wage flexibility and the zero lower bound (2019) Downloads
Working Paper: Gains from Wage Flexibility and the Zero Lower Bound (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0367

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