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Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions

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  • Nicolas Petrosky-Nadeau
  • Etienne Wasmer

Abstract

Building a model with three imperfect markets - goods, labor and credit - representing a product’s life-cycle, we find that goods market frictions drastically change the qualitative and quantitative dynamics of labor market variables. The calibrated model leads to a significant reduction in the gap with the data, both in terms of persistence and volatility while search models of the labor market fail in one of the two dimensions. Two factors related to goods market frictions generate these results: i) the expected dynamics of consumers’ search for goods, itself depending on the income redistributed by firms and the entry of new products; and ii) the expected dynamics of prices, which alter future profit flows.

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Bibliographic Info

Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2011-E6.

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Handle: RePEc:cmu:gsiawp:295397195

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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

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Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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  1. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  2. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  3. Simon G. Gilchrist & Ben Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
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  12. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Credit and Labor Markets Imperfections," Sciences Po publications info:hdl:2441/8622, Sciences Po.
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  16. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  17. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  18. Nicolas Petrosky-Nadeau & Etienne Wasmer, . "The cyclical volatility of labor markets under frictional financial markets," GSIA Working Papers 2010-E1, Carnegie Mellon University, Tepper School of Business.
  19. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  20. 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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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Razor innovation in macroeconomics
    by Economic Logician in Economic Logic on 2011-07-15 14:13:00
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Cited by:
  1. M. Casares & L. Deidda & JE. Galdon Sanchez, 2013. "Business cycle and monetary policy analysis with market rigidities and financial frictions," Working Paper CRENoS 201301, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. Sanjay K. Chugh & David M. Arseneau, 2008. "Optimal Fiscal and Monetary Policy in Customer Markets," 2008 Meeting Papers 101, Society for Economic Dynamics.
  3. Beaubrun-Diant, Kevin & Tripier, Fabien, 2013. "Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality," Economics Papers from University Paris Dauphine 123456789/13009, Paris Dauphine University.
  4. Etienne Wasmer, 2011. "A steady-state model of a non-walrasian economy with three imperfect markets," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  5. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers 1216, Society for Economic Dynamics.

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