Sectoral Labor Mobility and Optimal Monetary Policy
34 Pages Posted: 23 Mar 2017
Date Written: March 2017
In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.
Keywords: Central banks and their policies, Labor mobility, Optimal monetary policy, durable goods, DSGE, Monetary Policy (Targets, Instruments, and Effects)
JEL Classification: E52, E58
Suggested Citation: Suggested Citation