Labor Selection, Turnover Costs and Optimal Monetary Policy

Authors

• Lechthaler
• W.
• Merkl
• C.
• Faia
• E.

Publication Date

JEL Classification

Key Words

We study optimal monetary policy and welfare properties of a DSGE model with a labor selection process, labor turnover costs and Nash bargained wages. We show that our model implies ineffciencies which cannot be offset in a standard wage bargaining regime. We also show that the inefficiencies rise with the magnitude of firing costs. As a result, in the optimal Ramsey plan, the optimal inflation volatility deviates from zero and is an increasing function of firing costs.