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

Authors

• Lechthaler
• W.
• Snower
• D.J.

Publication Date

JEL Classification

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.

Kiel Institute Expert