Matching Efficiency and Business Cycle Fluctuations
CAMA Working Paper No. 34/2012
35 Pages Posted: 12 Jul 2012
Date Written: July 2012
A large decline in the efficiency of the US labor market in matching unemployed workers and vacant jobs has been documented during the Great Recession. We use a simple New Keynesian model with search and matching frictions in the labor market to study the macroeconomic implications of matching efficiency shocks. We show that the propagation of these disturbances and their importance for business cycle fluctuations depend crucially on the form of hiring costs and on the presence of nominal rigidities.
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