Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment
MIT and NBER; CREI, Universitat Pompeu Fabra, CEPR and NBER
New Keynesian model with labor market frictions (Diamond-Mortensen-Pissarides search and matching), hiring costs increasing in labor market tightness, real wage rigidities, and Calvo staggered price setting
intermediate firms: perfect competition, produce using labor with hiring costs; final firms: monopolistic competition with Calvo price staggering
Table 1
Optimal monetary policy US calibration; balances inflation and unemployment stabilization