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 …

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 …

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 …

in their unemployment rate and not a decline in labour force participation rate. Policymakers should take account of …

employment and hours affecting inflation dynamics via marginal costs. We find that the response of unemployment and inflation to … persistent movements of aggregate inflation. Moreover, the impact of a monetary policy shock on unemployment and inflation …

We propose that the natural rate of unemployment has an active role in the business cycle, in contrast to the … Phillips-curve framework of low - often extremely low - response of inflation to unemployment could be the result of fairly … most Phillips-curve studies, that conclude that inflation has little relation to unemployment. We suggest that the flat …