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Interacting nominal and real labour market rigidities

Abstract

This note analyses the interaction between nominal wage stickiness and costly employment adjustment in a small closed-economy New Keynesian model with simple rule-based or optimal monetary policy. The results show (1) the costs of nominal and real rigidity to depend on the policy regime, (2) optimal policy to substantially contain the welfare loss, and (3) the absence of quantitatively important second-best interaction, suggesting that reducing rigidity along one dimension alone does not risk reducing overall welfare.wage stickiness; employment adjustment costs; second best

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Research Papers in Economics

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Last time updated on 7/6/2012View original full text link

This paper was published in Research Papers in Economics.

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