Sectoral Labor Mobility and Optimal Monetary Policy
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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.
Series:
Working Paper No. 2017/040
Subject:
English
Publication Date:
March 6, 2017
ISBN/ISSN:
9781475584783/1018-5941
Stock No:
WPIEA2017040
Pages:
33
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