Optimal Monetary policy with Informality: A Benchmark Framework

Our paper aims at unveiling how much the monetary policy shall deviate from the zero-inflation allocation in an economy with a large informal sector. A first insight is thatinformality amplifies cost-push shocks on inflation. The gap between the natural rateand...

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Autores Principales: Gómez, Mónica A., Hairault, Jean-Olivier
Otros Autores: The Economics of Informality Conference 2018
Formato: Objeto de conferencia (Conference Object)
Lenguaje:Inglés (English)
Publicado: Universidad del Rosario. Facultad de Economía 2018
Materias:
Acceso en línea:http://repository.urosario.edu.co/handle/10336/18255
id ir-10336-18255
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spelling ir-10336-182552019-09-19T12:37:54Z Optimal Monetary policy with Informality: A Benchmark Framework Gómez, Mónica A. Hairault, Jean-Olivier The Economics of Informality Conference 2018 Informalidad Política monetaria óptima Macroeconomía neokeynesiana Distorsión fiscal Producción Economía informal Política monetaria Macroeconomía Informality Optimal monetary policy New-Keynesian macroeconomics Tax distortion Our paper aims at unveiling how much the monetary policy shall deviate from the zero-inflation allocation in an economy with a large informal sector. A first insight is thatinformality amplifies cost-push shocks on inflation. The gap between the natural rateand the first best allocation varies due to both fluctuations in tax distortion and sectoralmisallocation. In both channels, the size of informality is key for the magnitude of thecost-push shock, and with it the cost of business cycles. It happens that the higher thelevel of informality, the larger the business cycle costs are. A second insight is relatedto how the monetary policy should optimally spread these costs in terms of inflationand output gap volatility, and how it depends on the informality size. It is shown thatthe aggregate sacrifice ratio (in terms of a weighted average of the sectoral output gaps)increases with the size of the informal sector. This leads to recommend less inflationstability in an economy with a large informal sector. The last insight is that monetarypolicy should not target one particular sector as there is a sectoral integration condition.Only considerations related to informational issues could lead to recommend to favor theformal output gap in the monetary rule 2018-05-28 2018-08-03T15:55:58Z info:eu-repo/semantics/conferenceObject info:eu-repo/semantics/publishedVersion http://repository.urosario.edu.co/handle/10336/18255 eng Atribución-NoComercial-CompartirIgual 2.5 Colombia http://creativecommons.org/licenses/by-nc-sa/2.5/co/ info:eu-repo/semantics/openAccess application/pdf Universidad del Rosario. Facultad de Economía instname:Universidad del Rosario reponame:Repositorio Institucional EdocUR
institution EdocUR - Universidad del Rosario
collection DSpace
language Inglés (English)
topic Informalidad
Política monetaria óptima
Macroeconomía neokeynesiana
Distorsión fiscal
Producción
Economía informal
Política monetaria
Macroeconomía
Informality
Optimal monetary policy
New-Keynesian macroeconomics
Tax distortion
spellingShingle Informalidad
Política monetaria óptima
Macroeconomía neokeynesiana
Distorsión fiscal
Producción
Economía informal
Política monetaria
Macroeconomía
Informality
Optimal monetary policy
New-Keynesian macroeconomics
Tax distortion
Gómez, Mónica A.
Hairault, Jean-Olivier
Optimal Monetary policy with Informality: A Benchmark Framework
description Our paper aims at unveiling how much the monetary policy shall deviate from the zero-inflation allocation in an economy with a large informal sector. A first insight is thatinformality amplifies cost-push shocks on inflation. The gap between the natural rateand the first best allocation varies due to both fluctuations in tax distortion and sectoralmisallocation. In both channels, the size of informality is key for the magnitude of thecost-push shock, and with it the cost of business cycles. It happens that the higher thelevel of informality, the larger the business cycle costs are. A second insight is relatedto how the monetary policy should optimally spread these costs in terms of inflationand output gap volatility, and how it depends on the informality size. It is shown thatthe aggregate sacrifice ratio (in terms of a weighted average of the sectoral output gaps)increases with the size of the informal sector. This leads to recommend less inflationstability in an economy with a large informal sector. The last insight is that monetarypolicy should not target one particular sector as there is a sectoral integration condition.Only considerations related to informational issues could lead to recommend to favor theformal output gap in the monetary rule
author2 The Economics of Informality Conference 2018
author_facet The Economics of Informality Conference 2018
Gómez, Mónica A.
Hairault, Jean-Olivier
format Objeto de conferencia (Conference Object)
author Gómez, Mónica A.
Hairault, Jean-Olivier
author_sort Gómez, Mónica A.
title Optimal Monetary policy with Informality: A Benchmark Framework
title_short Optimal Monetary policy with Informality: A Benchmark Framework
title_full Optimal Monetary policy with Informality: A Benchmark Framework
title_fullStr Optimal Monetary policy with Informality: A Benchmark Framework
title_full_unstemmed Optimal Monetary policy with Informality: A Benchmark Framework
title_sort optimal monetary policy with informality: a benchmark framework
publisher Universidad del Rosario. Facultad de Economía
publishDate 2018
url http://repository.urosario.edu.co/handle/10336/18255
_version_ 1645140835891675136
score 11,366519