Monetary Persistence and the Labor Market: A New Perspective

34 Pages Posted: 8 Feb 2010  

Wolfgang Lechthaler

Institute for the World Economy

Christian Merkl

Kiel Institute for the World Economy; University of Kiel; IZA Institute of Labor Economics

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: January 2010

Abstract

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

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

Wolfgang Lechthaler (Contact Author)

Institute for the World Economy ( email )

D├╝sternbrooker Weg 120
Kiel, D-24105
Germany

HOME PAGE: http://www.ifw-kiel.de/kiel-institute-for-the-world-economy/view?set_language=en

Christian Merkl

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW) ( email )

Duesternbrooker Weg 120
D-24118 Kiel
Germany
+49+431-8814-235 (Phone)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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