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Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment

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dc.contributor.author Blanchard, Olivier Jean
dc.contributor.author Gali, Jordi
dc.date.accessioned 2012-07-31T12:55:16Z
dc.date.available 2012-07-31T12:55:16Z
dc.date.issued 2010-04
dc.identifier.issn 1945-7715
dc.identifier.uri http://hdl.handle.net/1721.1/71906
dc.description.abstract We construct a utility-based model of fluctuations with nominal rigidities and unemployment. We first show that under a standard utility specification, productivity shocks have no effect on unemployment in the constrained efficient allocation. That property is also shown to hold, despite labor market frictions, in the decentralized equilibrium under flexible prices and wages. Inefficient unemployment fluctuations arise when we introduce real-wage rigidities. As a result, in the presence of staggered price setting by firms, the central bank faces a trade-off between inflation and unemployment stabilization, which depends on labor market characteristics. We draw the implications for optimal monetary policy. en_US
dc.description.sponsorship National Science Foundation (U.S.) (SES 0617744) en_US
dc.language.iso en_US
dc.publisher American Economic Association en_US
dc.relation.isversionof http://dx.doi.org/10.1257/mac.2.2.1 en_US
dc.rights Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. en_US
dc.source American Economic Association en_US
dc.title Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment en_US
dc.type Article en_US
dc.identifier.citation Blanchard, Olivier, and Jordi Galí. 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment." American Economic Journal: Macroeconomics, 2(2): 1–30. Copyright 2010 American Economic Association. en_US
dc.contributor.department Massachusetts Institute of Technology. Department of Economics en_US
dc.contributor.approver Blanchard, Olivier Jean
dc.contributor.mitauthor Blanchard, Olivier Jean
dc.relation.journal American Economic Journal: Macroeconomics en_US
dc.identifier.mitlicense PUBLISHER_POLICY en_US
dc.eprint.version Final published version en_US
dc.type.uri http://purl.org/eprint/type/JournalArticle en_US
eprint.status http://purl.org/eprint/status/PeerReviewed en_US
dspace.orderedauthors Blanchard, Olivier; Galí, Jordi en


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