Models of the monetary transmission mechanism often generate empirically implausible business fluctuations. This paper analyzes the role of on-the-job search in the propagation of monetary shocks in a sticky price model with labor market search frictions. Such frictions induce long-term...

This paper studies the implications for optimal monetary policy of introducing job search into the new Keynesian framework. Using the linear-quadratic approach described by Benigno and Woodford (2003, 2005), we derive a utility-based loss function that indicates that the goals of policymakers...

We present and discuss the simple search and matching model of the labor market against the background of developments in modern macroeconomics. We derive a simple representation of the model in a general equilibrium context and how the model can be used to analyze various policy issues in...

This paper integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities. The model is used to study the dynamic response of the economy to a monetary policy shock. The labor market displays search and matching frictions and bargaining over real wages and...

This paper develops a New Keynesian model with on the job search. Workers are allowed to search on the job in order to find a better job. I analyze how output, consumption, inflation, unemployment, and the other labor market variables respond to productivity and monetary policy shocks. I allow...

There is no such thing as a 'real' economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality,...

This paper estimates a New Keynesian DSGE model with search frictions and monetary rules augmented with different labor market indicators. In accordance with a theoretical literature I find that a central bank reacts to a labor market tightness, employment or unemployment. Posterior odds tests...

Costly nominal wage adjustment has received renewed attention in the design of optimal policy. In this paper, we embed costly nominal wage adjustment into the modern theory of frictional labor markets to study optimal fiscal and monetary policy. Our main result is that the optimal rate of price...

This paper examines implications of incorporating labor market search and matching frictions into a sticky price model for determinacy and E-stability of rational expectations equilibrium (REE) under interest rate policy. When labor adjustment takes place solely at the extensive margin,...