Leadership

Monetary Policy And Unemployment

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Executive Summary

Much recent research has focused on the development and analysis of extensions of the New Keynesian framework that model labor market frictions and unemployment explicitly. This paper describes some of the essential ingredients and properties of those models, and their implications for monetary policy. The existence of involuntary unemployment has long been recognized as one of the main ills of modern industrialized economies. And the rise in unemployment that invariably accompanies all economic downturns is, arguably, one of the main reasons why cyclical fluctuations are generally viewed as undesirable.

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