Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215445 
Year of Publication: 
2019
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 367
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
We analyze the welfare impact of greater wage flexibility while taking into account explicitly the existence of the zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the presence of the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.
Subjects: 
labor market flexibility
nominal rigidities
optimal monetary policy with commitment
Taylor rule
ZLB
JEL: 
E24
E32
E52
Document Type: 
Working Paper

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