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Labor-Market Search and International Business Cycles

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  • Jean-Olivier Hairault

    (Eurequa, Université de Paris I)

Abstract

The objective of this paper is to explain the observed international fluctuations by modifying the traditional modelling of the labor market in the two-country real business cycles model. Our intuition is that labor-market search can be useful to understand the propagation of international fluctuations. Changes in the expected returns to search induce responses in search and recruiting activities, the effects of which are propagated through time via changes in the stock of employment. Given that the technology shock spills over to the other country, domestic and foreign firms start searching at the same time in anticipation. Employment then increases simultaneously and displays a hump-shaped profile in the two countries. This partially curtails the capital outflow from the country which does not benefit from the shock. Introducing in a search framework a non-separability between consumption and leisure in the utility function allows both to solve the consumption puzzle and to complete the explanation of the international comovement puzzle. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.2001.0154
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 5 (2002)
Issue (Month): 3 (July)
Pages: 535-558

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Handle: RePEc:red:issued:v:5:y:2002:i:3:p:535-558

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Related research

Keywords: international business cycles; search; wage bargaining;

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References

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  1. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
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  13. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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  17. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
  18. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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