Sectoral Labor Mobility and Optimal Monetary Policy PDF Download

Author: Alessandro Cantelmo
Publisher: International Monetary Fund
ISBN: 1475584830
Category : Business & Economics
Languages : en
Pages : 33

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Book Description
In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.

Author: Daniela Hauser
Publisher:
ISBN:
Category : Labor mobility
Languages : en
Pages : 103

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Book Description
"The optimal currency literature has stressed the importance of labor mobility as a precondition for the success of monetary unions. But only a few studies formally link labor mobility to macroeconomic adjustment and policy. In this paper, we study macroeconomic dynamics and optimal monetary policy in an economy with cyclical labor flows across two distinct regions that share trade links and a common monetary framework. In our New Keynesian dynamic, stochastic, general-equilibrium model calibrated to the United States, migration flows are driven by fluctuations in the relative labor market performance across the monetary union. While labor mobility can be an additional channel for cross-regional spillovers as well as a regional shock absorber, we find that a mobile labor force closes the efficiency gaps in the labor market and thus lessens the trade-off between inflation and labor market stabilization. As migration flows are generally inefficient, however, region-specific disturbances introduce additional trade-offs with regional labor market conditions. Putting some weight on stabilizing fluctuations in the labor market enhances welfare when monetary policy follows a simple rule"--Abstract, page ii.

Author: Daniele Caratelli
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
This dissertation explores three questions in macroeconomics: two pertaining to labor macroeconomics and one concerning monetary economics. In the first chapter, I study the role wealth plays in workers' labor market outcomes and, in turn, how it impacts their earnings prospects over the business cycle. In the second chapter (joint with Basil Halperin) we investigate the optimal monetary policy in an sectoral economy with menu costs and find that the central bank should target constant nominal wages and not constant prices, as is typically prescribed. In the third and final chapter (joint with Aniket Baksy) we show that increased educational attainment played an important role in the decline in worker mobility in the US over the past three decades. This contrast with the existing literature, which attributes the decline to lower economic dynamism.

Author: Mahama Abdel Samir Sidbéwendé Bandaogo
Publisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 107

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Book Description
In this dissertation I study how economic activity outside of government control --informality-- impacts policy-making in a small open economy. I also study the impact of labor mobility in a currency union on the welfare of the union. Chapter 1 is concerned with the impact of informality on the Ramsey optimal fiscal and monetary policy. In particular, I ask: how does economic activity outside of government control affect the conduct of fiscal and monetary policy? I study this question in a New Keynesian, small open economy model. The model is assumed to feature informality in both goods and labor markets. A non-traded sector produces a non-taxed informal good. The traded sector produces a formal good and is subject to taxation, but it can hire workers using both formal and informal contracts. I show that the presence of informality decreases the optimal tax rate and increases macroeconomic volatility. Moreover, when the country cannot credibly precommit to the optimal policy, informality significantly increases the incentive to peg the currency. This result can help explain why many sub-Saharan African countries have plans to either expand existing currency unions or to form new ones. In Chapter 1 I also investigate the impact of the informal sector on fiscal policy: the tax rate levied by the government in the formal sector and the amount of public debt. With the steady state of the theoretical model described above, I show that the presence of informality decreases the optimal tax rate and increases the level of public debt. Using a panel data of developing countries, I empirically document the negative relationship between the size of the informal sector on the tax rate and its positive relationship with public debt. Chapter 2 is concerned with how migration within a currency union affects welfare across the union. In particular, I study this question in this paper with a New Keynesian currency union model. The union consists of two countries whose economies are characterized by labor market frictions. One country member has a higher job-finding rate and a lower unemployment rate compared to the other country, hence unemployed agents in the latter have an incentive to relocate to the former. I show that when firms have the ability to hire workers from abroad and when unemployed agents can relocate to a different country, the negative impact of asymmetric shocks is significantly reduced, improving welfare across the union on average.

Author: Pierre-Richard Agénor
Publisher: International Monetary Fund
ISBN: 1451854781
Category : Business & Economics
Languages : en
Pages : 98

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Book Description
This paper examines the role of the labor market in the transmission process of adjustment policies in developing countries. It begins by reviewing the recent evidence regarding the functioning of these markets. It then studies the implications of wage inertia, nominal contracts, labor market segmentation, and impediments to labor mobility for stabilization policies. The effect of labor market reforms on economic flexibility and the channels through which labor market imperfections alter the effects of structural adjustment measures are discussed next. The last part of the paper identifies a variety of issues that may require further investigation, such as the link between changes in relative wages and the distributional effects of adjustment policies.

Author: Alessandro Cantelmo
Publisher: International Monetary Fund
ISBN: 1484335457
Category : Business & Economics
Languages : en
Pages : 81

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Book Description
In a SVAR model of the US, the response of the relative price of durables to a monetary contraction is either flat or mildly positive. It significantly falls only if narrowly defined as the ratio between new-house and nondurables prices. These findings are rationalized via the estimation of a two-sector New-Keynesian (NK) models. Durables prices are estimated to be as sticky as nondurables, leading to a flat relative price response to a monetary shock. Conversely, house prices are estimated to be almost flexible. Such results survive several robustness checks and a three-sector extension of the NK model. These findings have implications for building two-sector NK models with durable and nondurable goods, and for the conduct of monetary policy.

Author: Jonathan Benchimol
Publisher: International Monetary Fund
ISBN: 1498324584
Category : Business & Economics
Languages : en
Pages : 52

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Book Description
The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.

Author: International Monetary Fund. Research Dept.
Publisher: International Monetary Fund
ISBN: 1484315448
Category : Business & Economics
Languages : en
Pages : 19

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Book Description
The Summer 2017 issue of the IMF Research Bulletin highlights new research such as recent IMF Working Papers and Staff Discussion Notes. The Research Summaries are “Structural Reform Packages, Sequencing, and the Informal Economy (by Zsuzsa Munkacsi and Magnus Saxegaard) and “A Broken Social Contract, Not High Inequality Led to the Arab Spring” (by Shantayanan Devarajan and Elena Ianchovichina). The Q&A section features “Seven Questions on Fintech” (by Tommaso Mancini-Griffoli). The Bulletin also includes information on recommended titles from IMF Publications and the latest articles from the IMF Economic Review.

Author: Sangyup Choi
Publisher: International Monetary Fund
ISBN: 1498356303
Category : Business & Economics
Languages : en
Pages : 26

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Book Description
We study the role of uncertainty shocks in explaining unemployment dynamics, separating out the role of aggregate and sectoral channels. Using S&P500 data from the first quarter of 1957 to third quarter of 2014, we construct separate indices to measure aggregate and sectoral uncertainty and compare their effects on the unemployment rate in a standard macroeconomic vector autoregressive (VAR) model. We find that aggregate uncertainty leads to an immediate increase in unemployment, with the impact dissipating within a year. In contrast, sectoral uncertainty has a long-lived impact on unemployment, with the peak impact occurring after two years. The results are consistent with a view that the impact of aggregate uncertainty occurs through a “wait-and-see” mechanism while increased sectoral uncertainty raises unemployment by requiring greater reallocation across sectors.

Author: Mr.Marco Airaudo
Publisher: International Monetary Fund
ISBN: 1475523165
Category : Business & Economics
Languages : en
Pages : 65

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Book Description
We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.