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Labor Market Participation, Unemployment and Monetary Policy

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  • Alessia Campolmi
  • Stefano Gnocchi

Abstract

We incorporate a participation decision in a standard New Keynesian model with matching frictions and show that treating the labor force as constant leads to incorrect evaluation of alternative policies. We also show that the presence of a participation margin mitigates the Shimer critique.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2014/03/wp2014-9.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 14-9.

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Length: 59 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:bca:bocawp:14-9

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Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/

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Keywords: Business fluctuations and cycles; Labour markets; Transmission of monetary policy;

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References

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  1. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  2. Mark Gertler & Antonella Trigari, 2006. "Unemployment fluctuations with staggered Nash wage bargaining," Proceedings, Federal Reserve Bank of San Francisco.
  3. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  4. Christina Patterson & Aysegul Sahin & Toshihiko Mukoyama, 2013. "Job Search Behavior over the Business Cycle," 2013 Meeting Papers 988, Society for Economic Dynamics.
  5. Federico Ravenna & Carl E. Walsh, 2011. "Welfare-Based Optimal Monetary Policy with Unemployment and Sticky Prices: A Linear-Quadratic Framework," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 130-62, April.
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  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  9. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics 4460, London School of Economics and Political Science, LSE Library.
  10. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
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  13. Sveen, Tommy & Weinke, Lutz, 2008. "New Keynesian perspectives on labor market dynamics," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 921-930, July.
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  17. Gabriel Chodorow-Reich & Loukas Karabarbounis, 2013. "The Cyclicality of the Opportunity Cost of Employment," NBER Working Papers 19678, National Bureau of Economic Research, Inc.
  18. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
  19. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  20. Carlos Thomas, 2006. "Search and Matching Frictions and Optimal Monetary Policy," CEP Discussion Papers dp0743, Centre for Economic Performance, LSE.
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  22. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  23. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  24. Antonella Trigari, 2006. "The Role of Search Frictions and Bargaining for Inflation Dynamics," Working Papers 304, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  25. Mark Aguiar & Erik Hurst & Loukas Karabarbounis, 2013. "Time Use during the Great Recession," American Economic Review, American Economic Association, vol. 103(5), pages 1664-96, August.
  26. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegul, 2009. "Aggregate Labor Market Outcomes: The Role of Choice and Chance," CEPR Discussion Papers 7435, C.E.P.R. Discussion Papers.
  27. Regis Barnichon & Andrew Figura, 2010. "What drives movements in the unemployment rate? a decomposition of the Beveridge curve," Finance and Economics Discussion Series 2010-48, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Alessia Campolmi & Ester Faia & Roland Winkler, 2011. "Fiscal Calculus in a New Keynesian Model with Labor Market Frictions," MNB Working Papers 2011/5, Magyar Nemzeti Bank (the central bank of Hungary).

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