The Welfare Consequences of Monetary Policy and the Role of the Labor Market : a Tax Interpretation

@inproceedings{Ravenna2008TheWC,
  title={The Welfare Consequences of Monetary Policy and the Role of the Labor Market : a Tax Interpretation},
  author={Federico Ravenna and Carl E. Walsh},
  year={2008}
}
We explore the distortions in business cycle models arising from inefficiencies in price setting and in the search process matching firms to unemployed workers, and the implications of these distortions for monetary policy. To this end, we characterize the tax instruments that would implement the first best equilibrium allocations and then examine the trade-offs faced by monetary policy when these tax instruments are unavailable. Our findings are that the welfare cost of search inefficiency can… CONTINUE READING

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