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http://ssrn.com/abstract=1610151
 
 

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Involuntary Unemployment and the Business Cycle


Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Mathias Trabandt


Board of Governors of the Federal Reserve System (FRB); Sveriges Riksbank

Karl Walentin


Sveriges Riksbank

May 11, 2010

ECB Working Paper No. 1202

Abstract:     
We propose a monetary model in which the unemployed satisfy the official US definition of unemployment: they are people without jobs who are (i) currently making concrete efforts to find work and (ii) willing and able to work. In addition, our model has the property that people searching for jobs are better off if they find a job than if they do not (i.e., unemployment is ‘involuntary’). We integrate our model of involuntary unemployment into the simple New Keynesian framework with no capital and use the resulting model to discuss the concept of the ‘non-accelerating inflation rate of unemployment’. We then integrate the model into a medium sized DSGE model with capital and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to the three shocks.

Number of Pages in PDF File: 59

Keywords: DSGE, unemployment, business cycles, monetary policy, Bayesian estimation

JEL Classification: E2, E3, E5, J2, J6

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Date posted: June 9, 2010  

Suggested Citation

Christiano, Lawrence J. and Trabandt, Mathias and Walentin, Karl, Involuntary Unemployment and the Business Cycle (May 11, 2010). ECB Working Paper No. 1202. Available at SSRN: http://ssrn.com/abstract=1610151

Contact Information

Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Mathias Trabandt
Board of Governors of the Federal Reserve System (FRB) ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Sveriges Riksbank ( email )
Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Karl Walentin
Sveriges Riksbank ( email )
Brunkebergstorg 11
SE-103 37 Stockholm
Sweden
HOME PAGE: http://www.riksbank.com/research/walentin

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Citations:  10
Footnotes:  44

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