2016-12-12Diskussionpapier DOI: 10.18452/18461
Labor Market Frictions and Monetary Policy Design
This paper estimates a New Keynesian DSGE model with search frictions and monetary rules augmented with different labor market indicators. In accordance with a theoretical literature I find that a central bank reacts to a labor market tightness, employment or unemployment. Posterior odds tests speak in favor of models with augmented Taylor rules versus a model with a model with a standard rule. The augmented rules were also shown to be more efficient in terms of welfare.
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