Ester Faia ,
Labor Selection, Turnover Costs and Optimal Monetary Policy
AbstractWe study optimal monetary policy and welfare properties of a DSGE model with a labor selection process, labor turnover costs and Nash bargained wages. We show that our model implies ineffciencies which 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.
Keywordsoptimal monetary policy, hiring and firing costs, labor market frictions, policy trade-off
JEL classificationE52, E24