Unemployment and Business Cycles

43 Pages Posted: 1 Aug 2013 Last revised: 20 Feb 2023

See all articles by Lawrence J. Christiano

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)

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Mathias Trabandt

Goethe University in Frankfurt

Multiple version iconThere are 2 versions of this paper

Date Written: August 2013

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.

Suggested Citation

Christiano, Lawrence J. and Eichenbaum, Martin and Trabandt, Mathias, Unemployment and Business Cycles (August 2013). NBER Working Paper No. w19265, Available at SSRN: https://ssrn.com/abstract=2304692

Lawrence J. Christiano (Contact Author)

Northwestern University ( email )

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Martin Eichenbaum

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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Mathias Trabandt

Goethe University in Frankfurt ( email )

Germany

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