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Journal article
Ester Faia ,

Labor Selection, Turnover Costs and Optimal Monetary Policy

  • Abstract

    We 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.
  • Keywords

    optimal monetary policy, hiring and firing costs, labor market frictions, policy trade-off
  • JEL classification

    E52, E24
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