Insider-Outsider Labor Markets, Hysteresis and Monetary Policy / Jordi Galí.

Format:

Book

Author/Creator:

Galí, Jordi.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27385.

NBER working paper series no. w27385

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

I develop a version of the New Keynesian model with insider-outsider labor markets and hysteresis that can account for the high persistence of European unemployment. I study the implications of that environment for the design of monetary policy. The optimal policy calls for strong emphasis on (un)employment stabilization which a standard interest rate rule fails to deliver, with the gap between the two increasing in the degree of hysteresis. Two simple targetiing rules are shown to approximate well the optimal policy. The properties of the model and effects of different policies are analyzed through the lens of the labor wedge and its components.

Notes:

Print version record

June 2020.