Sectoral Labor Mobility and Optimal Monetary Policy

March 6, 2017

Preview Citation

Format: Chicago

Alessandro Cantelmo, and Giovanni Melina. Sectoral Labor Mobility and Optimal Monetary Policy, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.

Subject: Inflation, Labor, Labor mobility, Prices, Sticky prices, Wages

Keywords: Costs durable goods, DSGE, Durable goods, Durables inflation, Inflation, Inflation composite, Labor mobility, Monetary policy rule, Monetary policy stance, Nondurable goods, Optimal monetary policy, Sectoral price markup shock, Sticky prices, Substitution durable goods, Wages, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/040
Stock No:

WPIEA2017040
ISBN:

9781475584783
ISSN:

1018-5941

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