Working Paper
Quadratic Labor Adjustment Costs, Business Cycle Dynamics and Optimal Monetary Policy
Kiel Working Papers, 1453
Authors
Publication Date
JEL Classification
E24
E32
E52
J23
Key Words
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, it is demonstrated that quadratic labor adjustment costs imply a trade off between stabilizing output and stabilizing inflation.
