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

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  • Nicolas Petrovsky-Nadeau

    (Tepper School of Business)

  • Etienne Wasmer

    (Département d'économie)

Abstract

Building a model with three imperfect markets - goods, labor and credit - representing a product’s life-cyle, 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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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/5l6uh8ogmqildh09h481l2tb5.

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Date of creation: 26 May 2011
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Handle: RePEc:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5

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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. David M. Arseneau & Ryan Chahrour & Sanjay K. Chugh & Alan Finkelstein Shapiro, 2013. "Optimal Fiscal and Monetary Policy in Customer Markets," Boston College Working Papers in Economics, Boston College Department of Economics 842, Boston College Department of Economics.
  2. Pascal Michaillat & Emmanuel Saez, 2014. "Aggregate Demand, Idle Time, and Unemployment," Discussion Papers 1419, Centre for Macroeconomics (CFM).
  3. 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.
  4. 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.
  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, Society for Economic Dynamics 1216, Society for Economic Dynamics.
  6. Wasmer, Etienne, 2011. "A Steady-State Model of a Non-Walrasian Economy with Three Imperfect Markets," IZA Discussion Papers 5758, Institute for the Study of Labor (IZA).
  7. Wouter Den Haan, 2014. "Inventories and the Role of Goods-Market Frictions for Business Cycles," Discussion Papers 1402, Centre for Macroeconomics (CFM).

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