Employment, hours and optimal monetary policy

Arbeitspapier

We characterize optimal monetary policy in a New Keynesian search-and-matching model where multiple-worker firms satisfy demand in the short run by adjusting hours per worker. Imperfect product market competition and search frictions reduce steady state hours per worker below the efficient level. Bargaining results in a convex 'wage curve' linking wages to hours. Since the steady-state real marginal wage is low, wages respond little to hours. As a result, firms overuse the hours margin at the expense of hiring, which makes hours too volatile. The Ramsey planner uses inflation as a instrument to dampen inefficient hours fluctuations.

Object Details

• ISBN: 978-3-95729-115-8
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 01/2015

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
• Subject: employment ; hours ; wage curve ; optimal monetary policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dossche, Maarten ; Lewis, Vivien ; Poilly, Céline
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/106787
• Last update: 10.03.2025, 11:42 AM CET