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Employment, hours and optimal monetary policy

By Maarten Dossche, Vivien Lewis and C\ue9line Poilly

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 \u2018wage curve\u2019 linking wages to hours. Since the steadystate 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 an instrument to dampen inefficient hours fluctuations

Topics: E30, E50, E60, ddc:330, employment, hours, wage curve, optimal monetary policy, Lohnkurve, Arbeitszeit, Ramsey-Preis, Geldpolitik, Neoklassische Synthese
Publisher: Brussels: National Bank of Belgium
Year: 2014
OAI identifier: oai:econstor.eu:10419/144474
Provided by: EconStor

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