34 Pages Posted: 8 Feb 2010
Date Written: January 2010
In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.
Keywords: Business Cycle Statistics, Hiring and Firing Costs, Labor Market, Monetary Persistence
JEL Classification: E24, E32, E52, J23
Suggested Citation: Suggested Citation
Lechthaler, Wolfgang and Merkl, Christian and Snower, Dennis J., Monetary Persistence and the Labor Market: A New Perspective (January 2010). CEPR Discussion Paper No. DP7650. Available at SSRN: https://ssrn.com/abstract=1547570
This is a CEPR Discussion Paper. CEPR charges a fee of $5.00 for this paper.Login using your CEPR Personal Profile
File name: DP7650.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.