Journal Article
Quadratic Labor Adjustment Costs, Business Cycle Dynamics and Optimal Monetary Policy
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, we demonstrate the implication of quadratic labor adjustment costs for monetary policy. We show that there is a simple rule determining whether quadratic labor adjustment costs imply a trade-off between stabilizing inflation and output.
