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

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  • Petrosky-Nadeau, Nicolas

    ()
    (Carnegie Mellon University)

  • Wasmer, Etienne

    ()
    (Sciences Po, Paris)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5763.

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Length: 39 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5763

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Keywords: search; matching; business cycle; goods market imperfection;

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Blog mentions

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  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. 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.
  2. David M. Arseneau & Sanjay K. Chugh, 2008. "Optimal fiscal and monetary policy in customer markets," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 919, Board of Governors of the Federal Reserve System (U.S.).
  3. Beaubrun-Diant, Kevin & Tripier, Fabien, 2013. "Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/13009, Paris Dauphine University.
  4. Pascal Michaillat & Emmanuel Saez, 2013. "Aggregate Demand, Idle Time, and Unemployment," NBER Working Papers 18826, National Bureau of Economic Research, Inc.
  5. Miguel Casares & Luca Deidda & Jose E. Galdon-Sanchez, 2013. "Business cycle and monetary policy analysis with market rigidities and financial frictions," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 1304, Departamento de Economía - Universidad Pública de Navarra.
  6. Wouter Den Haan, 2014. "Inventories and the Role of Goods-Market Frictions for Business Cycles," Discussion Papers 1402, Centre for Macroeconomics (CFM).
  7. 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, Society for Economic Dynamics 1216, Society for Economic Dynamics.

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