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http://ssrn.com/abstract=1680648
 
 

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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

August 2010

Federal Reserve Bank of Atlanta CQER Working Paper No. 10-03

Abstract:     
We propose a monetary model in which the unemployed satisfy the official U.S. definition of unemployment: people without jobs who are (1) currently making concrete efforts to find work and (2) 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 (that is, 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 nonaccelerating 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: 53

Keywords: unemployment, job search, new Keynesian, nonaccelerating inflation rate of unemployment

JEL Classification: E02, E3, E5, J2, J6

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Date posted: September 23, 2010  

Suggested Citation

Christiano, Lawrence J. and Trabandt, Mathias and Walentin, Karl, Involuntary Unemployment and the Business Cycle (August 2010). Federal Reserve Bank of Atlanta CQER Working Paper No. 10-03. Available at SSRN: http://ssrn.com/abstract=1680648 or http://dx.doi.org/10.2139/ssrn.1680648

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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