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Christian R. Proaño
''Should monetary policy take account of national labor market asymmetries in a currency union?''
( 2012, Vol. 32 No.3 )
This paper investigates the design of optimal monetary policy in a currency union with asymmetric national labor markets. For this purpose a stylized theoretical two-country model is introduced where the occurrence of inflation differentials is a reflection of asymmetries in the labor market flexibility between the two countries. Through numerical simulations it is shown that a larger weight of the country with the more sclerotic labor market in the loss function of the monetary union's central bank is more advantageous at the monetary union's level than a simple weighting scheme based on the relative economic size of both countries.
Keywords: Monetary Policy, Labor Market Rigidities, Monetary Unions
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : May 30 2011 Manuscript Accepted : Jul 12 2012

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