A New Keynesian model with unemployment

Arbeitspapier

We develop a utility based model of fluctuations, with nominal rigidities, and unemployment. In doing so, we combine two strands of research: the New Keynesian model with its focus on nominal rigidities, and the Diamond-Mortensen-Pissarides model, with its focus on labor market frictions and unemployment. In developing this model, we proceed in two steps. We first leave nominal rigidities aside. We show that, under a standard utility specification, productivity shocks have no effect on unemployment in the constrained efficient allocation. We then focus on the implications of alternative real wage setting mechanisms for fluctuations in unemployment. We then introduce nominal rigidities in the form of staggered price setting by firms. We derive the relation between inflation and unemployment and discuss how it is influenced by the presence of real wage rigidities. We show the nature of the tradeoff between inflation and unemployment stabilization, and we draw the implications for optimal monetary policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 2007/08

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: New Keynesian Model ; Labor Market Frictions ; Search Model ; Unemployment ; Sticky Prices ; Real Wage Rigidities ; New-Keynesian Phillips Curve ; Ungleichgewichtstheorie ; Arbeitslosigkeit ; Lohnrigidität ; Preisrigidität ; Friktionelle Arbeitslosigkeit ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blanchard, Olivier ; Galí, Jordi
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/25509
• URN: urn:nbn:de:hebis:30-38183
• Last update: 10.03.2025, 11:43 AM CET