The Taylor principle and (in-)determinacy in a New Keynesian model with hiring frictions and skill loss

Arbeitspapier

We introduce skill decay during unemployment into Blanchard and Gali's (2008) 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" labour 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. Under indeterminacy, an adverse sunspot shock increases unemployment extremely persistently.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 208

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Monetary Policy ; Business Fluctuations; Cycles ; Unemployment: Models, Duration, Incidence, and Job Search
• Subject: Monetary policy rules ; Taylor principle ; Determinacy ; Hysteresis ; Skill decay ; Arbeitslosigkeit ; Qualifikation ; Humankapital ; Hysterese ; Geldpolitik ; Inflationsrate ; Taylor-Regel ; Keynesianismus

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rannenberg, Ansgar
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/144420
• Last update: 10.03.2025, 11:43 AM CET