Quadratic Labor Adjustment Costs, Business Cycle Dynamics and Optimal Monetary Policy

Autoren

• Lechthaler
• W.
• Snower
• D.J.

Erscheinungsdatum

JEL Classification

We build quadratic labor adjustment costs into an otherwise standard

New-Keynesian model of the business cycle and show that this increases

output persistence in a similar vein as other models of labor market

frictions.

 

Furthermore, we demonstrate the implication of quadratic labor adjustment costs for monetary policy. We show that there is a simple rule determining whether quadratic labor adjustment costs imply a trade-off between stabilizing inflation and output.

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