Involuntary Unemployment and the Business Cycle

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

53 Pages Posted: 23 Sep 2010

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)

Mathias Trabandt

Goethe University in Frankfurt

Karl Walentin

Sveriges Riksbank

Multiple version iconThere are 4 versions of this paper

Date Written: August 2010

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.

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

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

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: https://ssrn.com/abstract=1680648 or http://dx.doi.org/10.2139/ssrn.1680648

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

Goethe University in Frankfurt ( email )

Germany

Karl Walentin

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

HOME PAGE: http://www.riksbank.com/research/walentin

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
65
Abstract Views
1,032
Rank
217,303
PlumX Metrics