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Unemployment Crises

Nicolas Petrosky-Nadeau

Carnegie Mellon University - David A.Tepper School of Business

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

December 2013

A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the unemployment crisis in the Great Depression. The limited responses of wages from credible bargaining to labor market conditions, along with the congestion externality from matching frictions, cause the unemployment rate to rise sharply in recessions but decline gradually in booms. The frequency, severity, and persistence of unemployment crises in the model are quantitatively consistent with U.S. historical time series. The welfare gain from eliminating business cycle fluctuations is large.

Number of Pages in PDF File: 48

Keywords: Search and matching frictions, unemployment crises, the unemployment volatility puzzle, projection, nonlinear impulse response functions, the Great Depression

JEL Classification: E24, E32, J63, J64

working papers series

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Date posted: March 31, 2013 ; Last revised: December 4, 2013

Suggested Citation

Petrosky-Nadeau, Nicolas and Zhang, Lu, Unemployment Crises (December 2013). Available at SSRN: http://ssrn.com/abstract=2241695 or http://dx.doi.org/10.2139/ssrn.2241695

Contact Information

Nicolas Petrosky-Nadeau (Contact Author)
Carnegie Mellon University - David A.Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
HOME PAGE: http://sites.google.com/site/npetroskynadeau/

Lu Zhang
Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN

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Download Rank: 102,165
References:  27
Citations:  1

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