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(Un)Employment Dynamics: The Case of Monetary Policy Shocks

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  • Helge Braun

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    (Department of Economics Northwestern University)

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    Abstract

    This paper estimates an identified VAR on US data to gauge the dynamic response of the job finding rate, the worker separation rate, and vacancies to monetary policy shocks. I develop a general equilibrium model that can account for the large and persistent responses of vacancies, the job finding rate, the smaller but distinct response of the separation rate, and the inertial response of inflation. The model incorporates labor market frictions, capital accumulation, and nominal price rigidities. Special attention is paid to the role of different propagation mechanisms and the impact of search frictions on marginal costs. Estimates of selected parameters of the model show that wage rigidity, moderate search costs, and a high value of non-market activities are important in explaining the dynamic response of the economy. The analysis extends to a broader set of aggregate shocks and can be used to understand and design monetary, labor market, and other policies in the presence of labor market frictions

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    File URL: http://repec.org/sed2006/up.25687.1137703045.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 87.

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    Date of creation: 03 Dec 2006
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    Handle: RePEc:red:sed006:87

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    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    Keywords: Unemployment; Inflation; Labor Market Frictions;

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    References

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    1. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
    2. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
    3. Chéron, A. & Langot, François, 1999. "The Phillips and Beveridge curves revisited," CEPREMAP Working Papers (Couverture Orange) 9905, CEPREMAP.
    4. Riccardo DiCecio, 2005. "Comovement: it's not a puzzle," Working Papers 2005-035, Federal Reserve Bank of St. Louis.
    5. Delacroix, Alain, 2004. "Sticky bargained wages," Journal of Macroeconomics, Elsevier, vol. 26(1), pages 25-44, March.
    6. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    7. Stacey L. Schreft & Aarti Singh, 2003. "A closer look at jobless recoveries," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-73.
    8. Michael J. Pries, 2004. "Persistence of Employment Fluctuations: A Model of Recurring Job Loss," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 193-215, 01.
    9. 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.
    10. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
    11. Helge Braun & Reinout De Bock & Riccardo DiCecio, 2006. "Aggregate shocks and labor market fluctuations," Working Papers 2006-004, Federal Reserve Bank of St. Louis.
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    Cited by:
    1. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2006. "Wage Rigidity and Job Creation," 2006 Meeting Papers 773, Society for Economic Dynamics.
    2. Richard W P Holt, 2007. "Job Reallocation, Unemployment and Hours in a New Keynesian Model," ESE Discussion Papers 172, Edinburgh School of Economics, University of Edinburgh.

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