THE TAYLOR PRINCIPLE AND (IN-) DETERMINACY WITH HIRING FRICTIONS AND SKILL LOSS

2014 ◽  
Vol 19 (5) ◽  
pp. 1045-1073 ◽  
Author(s):  
Ansgar Rannenberg
Keyword(s):  
Real Wage ◽  
Marginal Cost ◽  
Inflation Targeting ◽  
New Keynesian ◽  
Wage Rigidity ◽  
Keynesian Model ◽  
Long Run ◽  
Passive Response ◽  
Feedback Rule ◽  
Real Wage Rigidity

We introduce skill decay during unemployment into a New Keynesian model with hiring frictions and real-wage rigidity. Plausible values of quarterly skill decay and real-wage rigidity turn the long-run marginal cost–unemployment relationship positive in a “European” labor market with little hiring but not in a fluid “American” one. If the marginal cost–unemployment relationship is positive, determinacy requires a passive response to inflation in the central bank's interest feedback rule if the rule features only inflation. Targeting steady-state output or unemployment helps to restore determinacy.

A NOTE ON BUSINESS-CYCLE PROPERTIES IN FRICTIONAL LABOR MARKETS

2018 ◽  
Vol 22 (5) ◽  
pp. 1370-1389
Author(s):  
Chia-Hui Lu
Keyword(s):  
Labor Markets ◽  
New Keynesian ◽  
Wage Rigidity ◽  
Search Model ◽  
Extensive Margin ◽  
Keynesian Model ◽  
Productivity Shock ◽  
Monetary Shock ◽  
Labor Market Dynamics ◽  
Real Wage Rigidity

This paper builds a standard search model with flexible prices and wages, and extensive and intensive labor adjustments. Money is introduced into the model through a cash-in-advance constraint in which only consumption is cash constrained. The model reproduces labor-market dynamics under a productivity shock and/or a monetary shock. I can replicate the Beveridge and Phillips curves that are observed in the data, and do not need to rely on the New Keynesian model or real wage rigidity. I find that the nonexistence of an extensive margin and different money mechanisms, such as cash constraints on investment and money in the utility function, do not change the above replications. Furthermore, I can still replicate the Beveridge curve even without money or with rigid prices.

Real wage rigidity and the Taylor principle

2009 ◽  
Vol 104 (1) ◽  
pp. 46-48 ◽  
Author(s):  
Eurilton Araújo
Keyword(s):  
Real Wage ◽  
Wage Rigidity ◽  
Real Wage Rigidity

scholarly journals DOES INFLATION TARGETING MATTER? AN EXPERIMENTAL INVESTIGATION

2016 ◽  
Vol 22 (2) ◽  
pp. 362-401 ◽  
Author(s):  
Camille Cornand ◽  
Cheick Kader M'baye
Keyword(s):  
Central Bank ◽  
Economic Activity ◽  
Laboratory Experiments ◽  
Inflation Targeting ◽  
Human Subjects ◽  
New Keynesian ◽  
Macroeconomic Performance ◽  
Inflation Target ◽  
Keynesian Model ◽  
Inflation Stabilization

We use laboratory experiments with human subjects to test the relevance of different inflation-targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We find that if the central bank cares only about inflation stabilization, announcing the inflation target does not make a difference in terms of macroeconomic performance compared with a standard active monetary policy. However, if the central bank also cares about the stabilization of economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap, although their average levels are not affected. This finding is consistent with the theoretical literature and provides a rationale for the adoption of a flexible inflation-targeting regime.

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