We introduce skill decay during unemployment into Blanchard and Gali's (2008) New-Keynesian model with hiring frictions … and real-wage rigidity. Plausible values of quarterly skill decay and realwage rigidity turn the long-run marginal cost-unemployment … relationship positive in a "European" labour market with little hiring but not in a fluid "American" one. If the marginal cost-unemployment …

correlated with inflation. While existing studies of monetary policy and unemployment only consider consumer money, we build a … greatly amplifies the effect of monetary policy on unemployment, and that an increase in inflation reduces the firm money …

When workers are exposed to human capital depreciation during periods of unemployment, hiring affects the unemployment … during unemployment into an otherwise standard New Keynesian model with search frictions in the labour market leads to the …

. Unemployed workers' skill losses generate multiple steady-state unemployment rates. When monetary policy is constrained by the … permanent unemployment trap. Since monetary policy is powerless to escape such traps ex post, it must avoid them ex ante. The …

, instead, favors unemployment-centric policy. One- and two-agent alternatives can show unanimous disapproval of inflation …

We introduce skill decay during unemployment into Blanchard and Gali's (2008) New-Keynesian model with hiring frictions … and real-wage rigidity. Plausible values of quarterly skill decay and real-wage rigidity turn the long-run marginal cost-unemployment … relationship positive in a "European" labour market with little hiring but not in a fluid "American" one. If the marginal cost-unemployment …

lose skill and are expensive to retrain, generating multiple steady state unemployment rates. Large temporary shocks push …, reducing hiring and catapulting the economy toward the high-unemployment steady state. Even after a short-lived liquidity trap …, the economy recovers slowly at best; at worst, it falls into a permanent unemployment trap. Because monetary policy may be …