2006, English, Article, Working paper edition: A new Keynesian model with unemployment Olivier Blanchard and Jordi Gali [electronic resource] Olivier Blanchard

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Physical Description
  • 43 p. :
Published
  • Cambridge, MA Massachusetts Institute of Technology, Dept. of Economics 2006
Language
  • English

Edition details

Title
  • A new Keynesian model with unemployment Olivier Blanchard and Jordi Gali
Author
  • Olivier Blanchard
Other Authors
  • Gal, Jordi, 1961-
  • Massachusetts Institute of Technology. Dept. of Economics
Published
  • Cambridge, MA Massachusetts Institute of Technology, Dept. of Economics 2006
Medium
  • [electronic resource]
Physical Description
  • 43 p. :
Series
Subjects
Summary
  • We develop a utility based model of fluctuations, with nominal rigidities, and unemployment. In doing so, we combine two strands of research: the New Keynesian model with its focus on nominal rigidities, and the Diamond-Mortensen-Pissarides model, with its focus on labor market frictions and unemployment. In developing this model, we proceed in two steps. We first leave nominal rigidities aside. We show that, under a standard utility specification, productivity shocks have no effect on unemployment in the constrained efficient allocation. We then focus on the implications of alternative real wage setting mechanisms for fluctuations in unemployment. We then introduce nominal rigidities in the form of staggered price setting by firms. We derive the relation between inflation and unemployment and discuss how it is influenced by the presence of real wage rigidities. We show the nature of the tradeoff between inflation and unemployment stabilization, and we draw the implications for optimal monetary policy. Keywords: new Keynesian model, labor market frictions, search model, unemployment, sticky prices, real wage rigidities. JEL Classifications: E32, E50.
Notes
  • "July 18, 2006." Includes bibliographical references (p. 42-43). Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.
Language
  • English
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