publication . Preprint . 2014

Search Frictions, Job Flows and Optimal Monetary Policy

Shoujian Zhang;
Open Access
  • Published: 12 Mar 2014
Abstract
Job creation and job destruction are investigated in an economy featured by search frictions in both labour and goods markets. We show that both the unemployment rate and the endogenous job destruction rate increase when the inflation rate rises, because the demand declines due to the increase in the cost of holding money. Our numerical exercises suggest that the destruction of lower productivity jobs and the creation of higher productivity jobs may be inefficiently low under the zero nominal interest rate, which in turn causes the deviation of optimal long run monetary policy from the Friedman rule.
Subjects
free text keywords: inflation, search frictions, money, welfare, jel:E52, jel:E24
19 references, page 1 of 2

[1] Berentsen, Aleksander, Gabriele Camera and Christopher Waller (2007) “Money, Credit and Banking,” Journal of Economic Theory, 135, 171-195.

[2] Berentsen, Aleksander, Guido Menzio, and Randall Wright (2011). “In‡ation and unemployment in the long run.” American Economic Review, vol. 101(1), 371-98

[3] Berentsen, Aleksander, Guillaume Rocheteau and Shouyong Shi (2007). “Friedman Meets Hosios: E¢ciency in Search Models of Money”, Economic Journal, 117, 174- 195.

[4] Berentsen, Aleksander. and Christopher Waller (2009). “Optimal Stabilization Policy With Endogneous Firm Entry”, mimeo, University of Notre Dame. [OpenAIRE]

[5] Blanchard, Olivier and Jordi Gali (2010) "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, vol. 2(2), 1-30

[6] Faig, Miquel (2006) “Divisible Money In An Economy With Villages” Working Paper 216, University of Toronto [OpenAIRE]

[7] Hosios, Arthur, (1990), “On the e¢ciency of matching and related models of search and unemployment,” Review of Economic Studies 57, 279-298

[8] Kiyotaki, Nobuhiro and Randall Wright (1991) “A contribution to the pure theory of money,” Journal of Economic Theory 53(2), 215-235

[9] Kiyotaki, Nobuhiro, and Randall Wright (1993) “A search-theoretic approach to monetary economics.” American Economic Review 83, 63-77. [OpenAIRE]

[10] Kumar, Alok (2008) “labour markets, unemployment and optimal in‡ation”. Mimeo, University of Victoria

[12] Lucas, Robert, Jr. (2000). “In‡ation and Welfare.” Econometrica 68 (March): 247– 74.

[13] Mortensen, Dale T. and Christopher Pissarides (1994) “Job Creation and Job Destruction in the Theory of Unemployment.” Review of Economic Studies 61, 397-416.

[14] Mortensen, Dale T. and Christopher Pissarides (1999) "New developments in models of search in the labour market," in: O. Ashenfelter & D. Card (ed.), Handbook of labour Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier

[15] Pissarides, Christopher (2000) Equilibrium Unemployment Theory, second edition, MIT Press [OpenAIRE]

[16] Rocheteau, Guillaume and Randall Wright (2005) “Money in Competitive Equilibrium, in Search Equilibrium, and in Competitive Search Equilibrium.” Econometrica 73 (2005), 175-202.

19 references, page 1 of 2
Powered by OpenAIRE Open Research Graph
Any information missing or wrong?Report an Issue