The effectiveness of monetary policy hinges on a thorough understanding of the mechanisms driving labor markets. Their importance in achieving a stable macroeconomic environment has been abundantly highlighted by the current crisis.

In recent decades, many countries have managed to curb inflation and achieve low unemployment. Today, however, monetary policy is facing new structural challenges related to the transformation of labor markets. In particular, rising income inequality, population ageing, global labor market liberalization and migration, along with many other issues, may threaten economic development and long-term macroeconomic stability. Cyclical effects only exacerbate these problems.

Therefore, it becomes urgent to review the relationship between monetary policy and the labor market. What are the current views on the impact of monetary policy on stabilizing economic cycles, and what does the effectiveness of monetary policy depend on? How does monetary policy affect economic inequality? Should lowering inequality be among the central bank’s goals? How justified is the dual mandate of central banks, or is it more advisable to focus on inflation?

These and other topics will be addressed at the Fifth Annual Research Conference of the National Bank of Ukraine on Labor Market and Monetary Policy.

Watch live on YouTube:

Thursday, 28 May 2020
14:45 – 15:00
15:00 – 15:30
Opening Remarks
Yakiv Smolii, National Bank of Ukraine
Paweł Szałamacha, Narodowy Bank Polski
15:30 – 17:10
Session 1:
Olesia Verchenko, Kyiv School of Economics

Insider-Outsider Labor Markets, Hysteresis and Monetary Policy img
Jordi Gali, University Pompeu Fabra
Yuriy Gorodnichenko, University of California, Berkeley img

Layoff Risk, the Welfare Cost of Business Cycles and Monetary Policy img
David Berger, Duke University
Dmitriy Sergeyev, Bocconi University img
17:10 – 18:50
Session 2:
Oleksandr Faryna, National Bank of Ukraine

The Missing Inflation Puzzle: The Role of the Wage-Price Pass-Through img
Aysegül Sahin, University of Texas at Austin
Viacheslav Sheremirov, Federal Reserve Bank of Boston img

Worker heterogeneity and employment recoveries in the face of aggregate demand and pandemic shocks img
Federico Ravenna, Danmarks Nationalbank img
Oleksiy Kryvtsov, Bank of Canada img
18:50 – 19:00
Submission of Papers to Journal of Money, Credit & Banking
Kenneth West, University of Wisconsin
19:00 – 20:30
Policy Panel:
The Future of Labor Markets: Challenges and Opportunities
Tymofiy Mylovanov, Kyiv School of Economics

Sergei Guriev, Sciences Po
Christopher Erceg, International Monetary Fund img
Andrzej Raczko, Narodowy Bank Polski img
Yuliia Svyrydenko, Ministry for Development of Economy, Trade and Agriculture of Ukraine img
20:30 – 21:30
Keynote Lecture
Robert Hall, Stanford University img
How the Reemployment Process Governs US Business-Cycle Recoveries

Friday, 29 May 2020
14:45 – 15:00
15:00 – 16:40
Session 3:
Maksym Obrizan, Kyiv School of Economics

Monopsony in Labor Markets: A study of power, productivity and wages in the United Kingdom img
Gregory Thwaites, LSE Centre for Macroeconomics img
Silvia Albrizio, Bank of Spain img

Migrations, Long-run Fiscal Sustainability and Economic Unions img
Sergii Kiiashko, National Bank of Ukraine img
Karl Walentin, Sveriges Riksbank img
16:40 – 17:40
Keynote Lecture
Stefan Ingves, Sveriges Riksbank img
17:40 – 19:20
Session 4:
Mihnea Constantinescu, National Bank of Ukraine

Non-linear Macro and Distributional Effects of US Monetary Policy img
Davide Furceri, International Monetary Fund img
Myroslav Pidkuyko, Bank of Spain img

Skewed Business Cycles img
Fatih Guvenen, University of Minnesota img
Michał Gradzewicz, Narodowy Bank Polski img
19:20 – 21:00
Session 5:
Tomasz Chmielewski, Narodowy Bank Polski

Banks and monetary policy in emerging market economies img
Amartya Lahiri, University of British Columbia img
Dmitry Mukhin, University of Wisconsin-Madison img

The Intensive and Extensive Margins of Real Wage Adjustment img
Bart Hobijn, Arizona State University img
Moritz Kuhn, University of Bonn img
21:00 – 21:20
Closing Remarks
Dmytro Sologub, National Bank of Ukraine

Jordi Gali, University Pompeu Fabra
Insider-Outsider Labor Markets, Hysteresis and Monetary Policy

I develop a version of the New Keynesian model with insider-outsider labor markets and hysteresis that can account for the high persistence of European unemployment. I study the implications of that environment for the design of monetary policy. The optimal policy calls for strong emphasis on (un)employment stabilization which a standard interest rate rule fails to deliver, with the gap between the two increasing in the degree of hysteresis. Two simple targeting rules are shown to approximate well the optimal policy. The properties of the model and effects of different policies are analyzed through the lens of the labor wedge and its components.

David Berger, Duke University
Layoff risk, the welfare cost of business cycles, and monetary policy

The strongest predictor of changes in the Fed Funds rate in the period 1982-2008 was the layoff rate. That fact is puzzling from the perspective of representative-agent models of the economy, which imply that the welfare gains of stabilizing employment fluctuations are small. This paper augments a standard New Keynesian model with a labor market featuring countercyclical layoffs that lead to large, uninsurable, and permanent idiosyncratic wage declines. In our benchmark calibration, welfare may be increased by 1 percent of lifetime consumption or more when the central bank's policy rule responds to the layoff rate instead of purely targeting inflation.

Aysegül Sahin, University of Texas at Austin
The Missing Inflation Puzzle: The Role of the Wage-Price Pass-Through

This paper revisits the growing disconnect between unemployment and inflation dynamics. First, we propose a novel and simple measure of labor market recovery – the unemployment recovery gap – and show that inflation-unemployment dynamics changed substantially in the 1990s. We then use rich industry-level data to examine the missing inflation puzzle and show that weakening pass-through from wages to prices in the goods-producing sector is an important source of the slow inflation pick-up since 1990. We identify increased import competition as a potential driver of the missing goods inflation following the Great Recession and provide empirical evidence for this channel. International evidence further confirms our hypothesis.

Federico Ravenna, Danmarks Nationalbank
Worker heterogeneity and employment recoveries in the face of aggregate demand and pandemic shocks

We employ a new Keynesian model with search and matching frictions in the labor market, combined with a simple model of worker heterogeneity, to show how heterogeneity has important implications for the response of employment, hours, and wages in the face of severe contractionary shocks. We focus on the role of selection in both job separations and hiring that lead to differential impacts of recessionary shocks across workers and we show that recessions disproportionately impact low-productivity workers. We identify an externality that results in unemployment spells of low-productivity workers being inefficiently frequent and inefficiently long, lead to worse lifetime labor market outcomes for these workers. The model is used to study the effects of a pandemic, such as COVID-19, which we represent as working through both a negative demand shock and a surge in exogenous separations. We show how endogenous separations are also affected, amplifying the resulting rise in unemployment. The unemployment consequences of negative demand shock are especially severe when monetary policy is constrained by the effective lower bound on nominal interest rates.

Gregory Thwaites, LSE Centre for Macroeconomics
Monopsony in the UK

We study the evolution and effects of monopsony power in the UK private sector labour market from 1998 to 2017. Using linked employee-firm micro-data, we find that: (1) Measures of monopsony have been relatively stable across the time period examined - rising prior to the crisis, before subsequently falling again. (2) There is substantial cross-sectional variation in monopsony at the industry level. (3) Higher levels of labour market concentration are associated with lower pay amongst workers not covered by a collective bargaining agreement. (4) For workers covered by a collective bargaining agreement, the association between labour market concentration and pay is greatly reduced and in most cases disappears. (5) The link between productivity and wage levels is weaker when labour markets are more concentrated.

Sergii Kiiashko, National Bank of Ukraine
Migrations, Long-run Fiscal Sustainability and Economic Unions

This paper studies the impact of international labor flows on the performance of economic unions where member states conduct independent fiscal policies. To this end, we extend the multi-country model populated by overlapping generations of agents where independent, benevolent governments conduct optimal, timeconsistent fiscal policy, which was proposed by Song, Storesletten and Zilibotti (2012). First extension involves the introduction of debt renegotiation similar to Arellano, Mateos-Planas and Rios-Rull (2019) that gives rise to the notion of fiscal sustainability. Second, we develop a novel matching process which aggregates microfounded migration decisions of workers and generates cross-border labor mobility. The model calibrated to match the empirical features related to the intra-EU labor flows is used to analyze the union-wide effects of migrations on the allocation of resources, fiscal conditions, inequality and welfare.

Davide Furceri, International Monetary Fund
Non-linear Macro and Distributional Effects of US Monetary Policy

This paper examines the macroeconomic and distributional effects of conventional and unconventional monetary policy. It employs high-frequency identification and the local projection method to estimate the dynamic effects of contractionary monetary policy shocks on key macroeconomic variables and inequality measures, and to examine whether these effects are sign- and state-dependent. We find robust evidence that an exogenous monetary policy tightening tends to decrease economic activity and increase inequality more than a monetary expansion reduces it. Moreover, while the negative effects of contractionary monetary policy on economic activity tend to be larger in expansions, the response of consumption inequality is stronger in recessions, consistently with a dominant role of the inflation channel. Finally, we find that unconventional monetary policy has been, at least, as much as effective in stabilizing output and contributing to reduce inequality as conventional monetary policy.

Fatih Guvenen, University of Minnesota
Skewed Business Cycles

Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, these distributions display a large left tail of negative growth rates during recessions and a large right tail of positive growth rates during booms. We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agents model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions.

Amartya Lahiri , University of British Columbia
Money and Banking in Emerging Economies

This paper departs from the standard dynamic stochastic general equilibrium macro models by introducing four new elements: financial market exclusion of some households, financial frictions, exogenous fiscal constraints and oil shocks. These modifications render the model much closer to the realities of emerging economies. Using counterfactual experiments we demonstrate that these financial market frictions render the transmission of monetary shocks much more pronounced in emerging economies. Our experiments also suggest that the greater flexibility of prices in emerging economies renders the traditional monetary transmission mechanism very weak.

Bart Hobijn, Arizona State University
The Intensive and Extensive Margins of Real Wage Adjustment

We decompose the aggregate measure of growth in real median usual weekly earnings for full-time workers into components due to contributions along the intensive margin – wage growth of the continuously full-time employed – and the extensive margin – wage differences of those moving into and out of full-time employment. The virtue of this decomposition is that it quantifies the importance of different margins for aggregate wage growth. The intensive margin is procyclical, dominates when labor markets are tight, and is largely driven by job changers. The extensive margin is counter-cyclical, important in labor market downturns and recoveries, and largely driven by part-time employment. Movements between full-time employment and unemployment account for little of the variation or cyclicality of aggregate real wage growth.

Silvia Albrizio
Banco de España
David Berger
Duke University
Tomasz Chmielewski
Narodowy Bank Polski
Mihnea Constantinescu
National Bank of Ukraine
Christopher Erceg
International Monetary Fund
Oleksandr Faryna
National Bank of Ukraine
Davide Furceri
International Monetary Fund
Jordi Galí
Center for Research in International Economics
Yuriy Gorodnichenko
University of California, Berkeley
Michał Gradzewicz
Narodowy Bank Polski
Sergei Guriev
Sciences Po
Fatih Guvenen
University of Minnesota
Robert Hall
Stanford University
Bart Hobijn
Arizona State University
Stefan Ingves
Sveriges Riksbank
Sergii Kiiashko
National Bank of Ukraine
Oleksiy Kryvtsov
Bank of Canada
Moritz Kuhn
University of Bonn
Amartya Lahiri
University of British Columbia
Dmitry Mukhin
University of Wisconsin-Madison
Tymofiy Mylovanov
Kyiv School of Economics
Maksym Obrizan
Kyiv School of Economics
Myroslav Pidkuyko
Bank of Spain
Andrzej Raczko
Narodowy Bank Polski
Federico Ravenna
Danmarks Nationalbank
Aysegul Sahin
UT Austin
Dmitriy Sergeyev
Bocconi University
Viacheslav Sheremirov
Federal Reserve Bank of Boston
Yakiv Smolii
National Bank of Ukraine
Dmytro Sologub
National Bank of Ukraine
Yuliia Svyrydenko
Ministry for Development of Economy, Trade and Agriculture of Ukraine
Paweł Szałamacha
Narodowy Bank Polski
Gregory Thwaites
LSE Centre for Macroeconomics
Olesia Verchenko
Kyiv School of Economics
Karl Walentin
Sveriges Riksbank
Kenneth West
University of Wisconsin - Madison
With the support of

Since the beginning of the crisis in Ukraine, Canada has been at the forefront of the international community’s support to the Ukrainian people — especially in their government’s ongoing and important reform efforts.

Since January 2014, Canada has announced more than CAD 750 million in much-needed assistance to Ukraine, including CAD 400 million in low-interest loans to help Ukraine stabilize its economy and over CAD 245 million in bilateral development assistance.

More information


Founded in 1996, the Kyiv School of Economics (KSE) is a world-class, well-respected educational institution, both in Ukraine and abroad. The KSE is ranked among the top schools in Central and Eastern Europe. This educational institution trains the future generation of world-class economists, thus contributing to the development of economics, business, as well as economic policy in Ukraine and neighboring countries.

More information