Citation

Discussion Paper Details

Please find the details for DP14886 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Insider-Outsider Labor Markets, Hysteresis and Monetary Policy

Author(s): Jordi Galí

Publication Date: June 2020

Keyword(s): monetary policy tradeoffs, New Keynesian Model, Unemployment fluctuations, Wage Phillips Curve and Wage stickiness

Programme Area(s): Labour Economics and Monetary Economics and Fluctuations

Abstract: 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14886

Bibliographic Reference

Galí, J. 2020. 'Insider-Outsider Labor Markets, Hysteresis and Monetary Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14886