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Employment, hours and optimal monetary policy

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

No 262, Working Paper Research from National Bank of Belgium

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 steadystate 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 an instrument to dampen inefficient hours fluctuations.

Keywords: employment; hours; wage curve; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E30 E50 E60 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
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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:nbb:reswpp:201409-262

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