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Labor Selection, Turnover Costs, and Optimal Monetary Policy
Author(s) -
FAIA ESTER,
LECHTHALER WOLFGANG,
MERKL CHRISTIAN
Publication year - 2014
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12099
Subject(s) - economics , dynamic stochastic general equilibrium , wage , welfare , monetary policy , volatility (finance) , offset (computer science) , microeconomics , monetary economics , econometrics , labour economics , market economy , computer science , programming language
We study optimal monetary policy and welfare properties of a dynamic stochastic general equilibrium (DSGE) model with a labor selection process, labor turnover costs, and Nash bargained wages. We show that our model implies inefficiencies that cannot be offset in a standard wage bargaining regime. We also show that the inefficiencies rise with the magnitude of firing costs. As a result, in the optimal Ramsey plan, the optimal inflation volatility deviates from zero and is an increasing function of firing costs.