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Abstract

In this paper I evaluate to what extent a real business cycle (RBC) model that incorporates search and leisure decisions can simultaneously account for the observed behavior of employment, unemployment and out-of-the-labor-force. This contrasts with the previous RBC literature, which analyzed employment or hours fluctuations by either lumping together unemployment and out-of-the-labor-force into a single non-employment state or assuming a fixed labor force participation. Once the three employment states are explicitly introduced I find that the RBC model generates highly counterfactual labor market dynamics.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-02-12.

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Date of creation: 2002
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Handle: RePEc:fip:fedhwp:wp-02-12

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Keywords: Employment (Economic theory) ; Labor market ; Labor supply ; Unemployment;

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This paper has been announced in the following NEP Reports:

• NEP-ALL-2003-01-27 (All new papers)
• NEP-DGE-2003-01-27 (Dynamic General Equilibrium)

References

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