Employment, hours and optimal monetary policy

Maarten Dossche, Vivien Lewis and Céline Poilly ()

No 01/2015, Discussion Papers from Deutsche Bundesbank

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.

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)
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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https://www.econstor.eu/bitstream/10419/106787/1/817034498.pdf (application/pdf)

Related works:
Working Paper: Employment, hours and optimal monetary policy (2014)
Working Paper: Employment, hours and optimal monetary policy (2014)
Working Paper: Employment, hours and optimal monetary policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:012015

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