Sectoral Labor Mobility and Optimal Monetary Policy

34 Pages Posted: 23 Mar 2017

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017

Abstract

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

Cantelmo, Alessandro and Melina, Giovanni, Sectoral Labor Mobility and Optimal Monetary Policy (March 2017). IMF Working Paper No. 17/40, Available at SSRN: https://ssrn.com/abstract=2938339

Alessandro Cantelmo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giovanni Melina

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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