Gains from Wage Flexibility and the Zero Lower Bound*
Copyright policy )Gains from Wage Flexibility and the Zero Lower Bound*
AbstractWe analyse the welfare impact of greater wage flexibility in the presence of an occasionally binding 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 ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.
- Universitat Pompeu Fabra Spain
- Massachusetts Institute of Technology United States
- National Bureau of Economic Research United States
- Centre for Economic Policy Research United Kingdom
- Centre de Recerca en Economia Internacional Spain
ZLB, zlb, ddc:330, optimal monetary policy with commitment, taylor rule, Taylor rule, flexibility, labor market flexibility, Macroeconomics and International Economics, E24, labor market, nominal rigidities, E52, E32
ZLB, zlb, ddc:330, optimal monetary policy with commitment, taylor rule, Taylor rule, flexibility, labor market flexibility, Macroeconomics and International Economics, E24, labor market, nominal rigidities, E52, E32
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