We consider an efficiency-wage model with the Calvo-type sticky prices and analyze the optimal monetary policy when the unemployment insurance is not perfect. With imperfect risk sharing, the strict zero-inflation policy is no longer optimal even when the zero-inflation steady-state equilibrium...

Recent research has found that the dynamic properties of the New Keynesian model are unorthodox when the nominal interest rate is zero. Improvements in technology and reductions in the labor tax rate lower economic activity and the size of the government purchase output multiplier is very large....