The majority of households across emerging market economies are excluded from the financial markets and cannot smooth consumption. I analyze the implications of this for optimal monetary policy and the corresponding choice of domestic versus external nominal anchor in a small open economy...

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...

The notion that the long-term unemployed are relatively detached from the labour market and therefore exert only little downward pressure on wage inflation has regained significant traction recently. This paper investigates whether the conclusion that long-term unemployment is only weakly...

The notion that the long-term unemployed are relatively detached from the labour market and therefore exert only little downward pressure on wage inflation has regained significant traction recently. This paper investigates whether the conclusion that long-term unemployment is only weakly...

Skill erosion during unemployment was of particular concern as unemployment duration increased in the Great Recession. I argue that it generates an externality in job creation: firms ignore how their hiring decisions affect the unemployment pool’s skill composition, and hence the output...

This paper uses a rich set of microeconomic labor market data--the 1988-90 Labour Market Activity Survey published by Statistics Canada--to test whether there is negative duration dependence in unemployment spells. It updates and extends similar work carried out by Jones (1995), who used the...

How should monetary authorities react to an oil price shock? The New Keynesian literature has concluded that ensuring perfect price stability is optimal. Yet, the contrast between theory and practice is striking: Inflation targeting central banks typically favor a longer run approach to price...

How do asymmetric labor market institutions affect the volatility of inflation and unemployment differentials in a currency union? What are the implications for monetary policy? To answer these questions, this paper sets up a DSGE currency union model with unemployment, hiring frictions and real...

How should monetary authorities react to an oil price shock? The New Keynesian literature has concluded that ensuring perfect price stability is optimal. Yet, the contrast between theory and practice is striking: Inflation targeting central banks typically favor a longer run approach to price...

Higher wage flexibility of new hires is introduced as an extension of the baseline model in Gali (2010), combining the New Keynesian monetary analysis framework with labor market frictions. It was shown that the possibility of higher wage flexibility of new hires has an implication forcrucial...