Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/320427 
Year of Publication: 
2021
Series/Report no.: 
Kiel Working Paper No. 2205
Publisher: 
Kiel Institute for the World Economy (IfW Kiel), Kiel
Abstract: 
We analyze Ramsey optimal monetary policy in a New-Keynesian model with search and matching fric- tions featuring (i) training costs due to skill loss from long-term unemployment and (ii) endogenous growth through learning-by-doing externalities. In a simplified two-period version of the model, the competitive equilibrium is shown to be inefficient due to two externalities: i) firms do not internalize the effects that hiring has on labor productivity through learning-by-doing; ii) firms do not fully internal- ize the effects that hiring has on future training costs. These externalities lead to inefficient fluctuations, thereby justifying deviations from price stability in response to productivity shocks. In a calibrated ver- sion of the full model we show significant deviations from price stability and significant differences be- tween optimal monetary policy and monetary policy that follows a Taylor rule.
Subjects: 
skill loss
human capital growth
unemployment
Ramsey optimal monetary policy
labor market frictions
policy trade-off
JEL: 
E24
E52
Document Type: 
Working Paper

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