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This note analyses the interaction between nominal wage stickiness and costly employment adjustment in a small closed-economy New Keynesian model with simple rule-based or optimal monetary policy. The results show 1 the costs of nominal and real rigidity to depend on the policy regime, 2 optimal policy to substantially contain the welfare loss, and 3 the absence of quantitatively important secondbest interaction, suggesting that reducing rigidity along one dimension alone does not risk reducing overall welfare.

Item Type: MPRA Paper -

Original Title: Interacting nominal and real labour market rigidities-

Language: English-

Keywords: Wage stickiness; employment adjustment costs; second best-

Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; CyclesE - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor ProductivityJ - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor DemandJ - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General-

Autor: Vogel, Lukas


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