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I revisit the General Theory's discussion of the role of wages in employment determination through the lens of the New … Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and … employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare …
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I revisit the General Theory's discussion of the role of wages in employment determination through the lens of the New … Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and … employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare …
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We incorporate a participation decision in a standard New Keynesian model with matching frictions and show that treating the labor force as constant leads to incorrect evaluation of alternative policies. We also show that the presence of a participation margin mitigates the Shimer critique.
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