Work

Optimal Currency Areas with Labor Market Frictions

Year: 2022

Type: article

Abstract: I study efficiency and optimal monetary policy in a two-country monetary union with frictional labor markets. With heterogeneity in labor market frictions, the constrained efficient allocation generically cannot be achieved even if productivity shocks affecting each country are the same. The second-best optimal policy targets smaller inflation and output gaps in the more sclerotic labor market. A quantitative calibration to the eurozone implies welfare gains from redefining the union’s inflation target to put more weight on its sclerotic members. (JEL E23, E24, E31, E52, F33, F45)

Source: American Economic Journal Macroeconomics

DOI: 10.1257/mac.20190002

Author: Rohan Kekre

Institution: University of Chicago

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W4220911670

FWCI: 1.016

Cites: 51

Cited by: 5

Related to: 10