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Black workers experience higher, more volatile unemployment than white workers, a racial dis-
parity unexplained by observables. A New Keynesian model with a frictional labor market,
endogenous separations, and employer discrimination explains these outcomes. We use the
model to assess how alternative monetary policy strategies affect labor market outcomes by
race. Switching to a monetary policy rule where interest rates respond to shortfalls of employment from its maximum level instead of deviations raises inflation and does not reduce the racial unemployment gap. A monetary policy rule where interest rates respond to the racial unemployment gap also fails to reduce the gap.
