Endogenous growth, skill obsolescence and optimal monetary policy

Wolfgang Lechthaler and Mewael F. Tesfaselassie

No 2205, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: We analyze Ramsey optimal monetary policy in a New-Keynesian model with search and matching fric- tions featuring (i) training costs due to skill loss from long-term unemployment and (ii) endogenous growth through learning-by-doing externalities. In a simplified two-period version of the model, the competitive equilibrium is shown to be inefficient due to two externalities: i) firms do not internalize the effects that hiring has on labor productivity through learning-by-doing; ii) firms do not fully internal- ize the effects that hiring has on future training costs. These externalities lead to inefficient fluctuations, thereby justifying deviations from price stability in response to productivity shocks. In a calibrated ver- sion of the full model we show significant deviations from price stability and significant differences be- tween optimal monetary policy and monetary policy that follows a Taylor rule.

Keywords: skill loss; human capital growth; unemployment; Ramsey optimal monetary policy; labor market frictions; policy trade-off (search for similar items in EconPapers)
JEL-codes: E24 E52 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/320427/1/1929726155.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:320427

Access Statistics for this paper

More papers in Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().