Unemployment, inflation and monetary policy in a dynamic New Keynesian model with hiring costs

Mirko Abbritti, Andrea Boitani and Mirella Damiani

No 22/2006, Quaderni del Dipartimento di Economia, Finanza e Statistica from Università di Perugia, Dipartimento Economia

Abstract: The dynamic general equilibrium model with hiring costs presented in this paper delivers involuntary unemployment in the steady state and involuntary fluctuations in unemployment. After calibrating the model, through simulations we are able to show that our model with labour market imperfections outperforms the standard NK model as for the persistence of responses to monetary shocks. Besides, the model can be easily used to assess the impact of different market imperfections on both the steady state and the dynamics of the economy. We are also able to show how two economies, differing in their “degrees of imperfection”, react to policy or non policy shocks: a rigid economy turns out to be less volatile than a flexible economy. Something that reflects the actual experience of the US (flexible) and European (rigid) economies.

Keywords: Hiring Costs; Wage Bargaining; Output Gap; New Keynesian Phillips Curve; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 E52 J64 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Unemployment, Inflation and Monetary Policy in a Dynamic New Keynesian Model with Hiring Costs (2007)
Working Paper: Unemployment, Inflation and Monetary Policy in a Dynamic New Keynesian Model with Hiring Costs (2007)
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