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Unemployment and business cycles

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  • Lawrence J. Christiano
  • Martin S. Eichenbaum
  • Mathias Trabandt

Abstract

We develop and estimate a general equilibrium model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, wages are not subject to exogenous nominal rigidities. Instead we derive wage inertia from our specification of how firms and workers interact when negotiating wages. Our model outperforms the standard Diamond-Mortensen-Pissarides model both statistically and in terms of the plausibility of the estimated structural parameter values. Our model also outperforms an estimated sticky wage model.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1089.

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Date of creation: 2013
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Handle: RePEc:fip:fedgif:1089

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The equation at the core of modern macro
    by Noah Smith in Noahpinion on 2014-01-14 19:27:00
  2. Bücherkiste (9): Die Festung der Makroökonomen
    by Gerald Braunberger in Fazit on 2014-04-07 10:11:50

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