Unemployment and Business Cycles

Research output: Contribution to journalArticle

41 Scopus citations

Abstract

We develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, we do not impose wage inertia. Instead we derive wage inertia from our specification of how firms and workers negotiate wages. Our model outperforms a variant of the standard New Keynesian Calvo sticky wage model. According to our estimated model, there is a critical interaction between the degree of price stickiness, monetary policy, and the duration of an increase in unemployment benefits.

Original languageEnglish (US)
Pages (from-to)1523-1569
Number of pages47
JournalEconometrica
Volume84
Issue number4
DOIs
StatePublished - Jul 1 2016

Keywords

  • Bayesian estimation
  • Nash bargaining
  • Search and matching
  • alternating offer bargaining
  • business cycles
  • unemployment
  • unemployment benefits
  • wage inertia
  • wage rules

ASJC Scopus subject areas

  • Economics and Econometrics

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