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Labor Market Search and Real Business Cycles: Reconciling Nash Bargaining with the Real Wage Dynamics

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  • Arnaud Cheron

    (Universite du Maine)

  • Francois Langot

    (Universite du Maine)

Abstract

This paper modifies the standard one-sector stochastic growth model in an effort to explain the observed low procyclicality of the aggregate real wage in the US. The modifications include labor market matching with Nash-bargaining of wages and preferences as introduced in the literature by Rogerson and Wright [1988]. These preferences are non-separable in consumption and leisure. They imply that in an equilibrium with effcient risk-sharing, the utility of employed agents exceeds that of unemployed agents. The simulation results suggest that our modified model overcomes one important weakness of the standard model, namely the predicted high contemporaneous correlation of the aggregate real wage with both output and labor input. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2003.11.003
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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): 7 (2004)
Issue (Month): 2 (April)
Pages: 476-493

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Handle: RePEc:red:issued:v:7:y:2004:i:2:p:476-493

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Related research

Keywords: search; wage; bargaining; welfare; business cycle;

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References

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  1. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 492-511, June.
  2. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 112-32, March.
  3. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 245-73, April.
  4. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report, Federal Reserve Bank of Minneapolis 102, Federal Reserve Bank of Minneapolis.
  5. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report, Federal Reserve Bank of Minneapolis 135, Federal Reserve Bank of Minneapolis.
  6. Joao Gomes & Jeremy Greenwood & Sergio T. Rebelo, 2001. "Equilibrium Unemployment," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 479, University of Rochester - Center for Economic Research (RCER).
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  8. Merz, Monika, 1999. "Heterogeneous job-matches and the cyclical behavior of labor turnover," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(1), pages 91-124, February.
  9. Cheron, Arnaud & Langot, Francois, 2000. "The Phillips and Beveridge curves revisited," Economics Letters, Elsevier, Elsevier, vol. 69(3), pages 371-376, December.
  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-96-28, Federal Reserve Bank of Chicago.
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  12. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper, Federal Reserve Bank of Cleveland 9312, Federal Reserve Bank of Cleveland.
  13. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  14. Michele Boldrin & Michael Horvath, 1994. "Labor Contracts and Business Cycles," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1068, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(3), pages 501-515.
  16. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
  17. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc.
  18. John M. Abowd & Francis Kramarz, 1997. "The Costs of Hiring and Separations," NBER Working Papers 6110, National Bureau of Economic Research, Inc.
  19. Fabrice Collard & David de la Croix, 2000. "Gift Exchange and the Business Cycle: The Fair Wage Strikes Back," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 166-193, January.
  20. Fairise, Xavier & Langot, Francois, 1994. "Labor productivity and the business cycle: Can R.B.C. models be saved?," European Economic Review, Elsevier, Elsevier, vol. 38(8), pages 1581-1594, October.
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