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Monetary Persistence and the Labor Market: A New PerspectiveWolfgang LechthalerInstitute for the World Economy Christian MerklKiel Institute for the World Economy; University of Kiel; Institute for the Study of Labor (IZA) Dennis J. SnowerUniversity of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) January 2010 CEPR Discussion Paper No. DP7650 Abstract: In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.
Number of Pages in PDF File: 34 Keywords: Business Cycle Statistics, Hiring and Firing Costs, Labor Market, Monetary Persistence JEL Classification: E24, E32, E52, J23 working papers seriesDate posted: February 8, 2010Suggested CitationContact Information
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