Working Paper

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

Kiel Working Papers, 1453

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.

Info

Publication Date
JEL Classification
E24, E32, E52, J23