Central Bank's Inflation Target Lowers Unemployment, Boosts Wages in Imperfect Markets
The paper explores how the Central Bank's goals affect unemployment. It suggests that when the Central Bank focuses on controlling inflation, unemployment and inflation levels are lower compared to when it targets things like output or money. The researchers used a model and found that with an inflation target, both the product and labor markets become more responsive to changes. This responsiveness leads to lower mark-up prices and makes wages more sensitive to job availability, reducing unemployment levels.