Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/145867
Authors: 
Kohlbrecher, Britta
Year of Publication: 
2016
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Transmission of Monetary Policy G14-V1
Abstract: 
This paper is the first to study optimal Ramsey monetary policy in a search and matching model that combines real wage rigidity and decreasing returns to scale in production. Adding decreasing returns to scale significantly reduces the trade-off between employment and inflation stabilization usually associated with real wage rigidity. As firms adjust employment in response to an aggregate productivity shock, the resulting change in the marginal product of labor partly offsets the effect of a rigid real wage on marginal costs. The effect is quantitatively important. Optimal inflation volatility is reduced by a factor of four compared to a model with constant returns.
JEL: 
E24
E52
J64
Document Type: 
Conference Paper

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