Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/154146 
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper No. 1713
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
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 an instrument to dampen inefficient hours fluctuations.
Subjects: 
employment
hours
optimal monetary policy
wage curve
JEL: 
E30
E50
E60
ISBN: 
978-92-899-1121-4
Document Type: 
Working Paper

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