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Monetary Shocks in a Model with Loss of Skills

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  • Julen Esteban-Pretel

    (Faculty of Economics, University of Tokyo)

  • Elisa Faraglia

    (London Business School)

Abstract

Unemployment shows persistent and long lasting responses to nominal and real shocks. Standard real business cycle models with search frictions but homogeneous labor force are able to generate some persistence, but not enough to match the empirical evidence. Moreover, empirical studies emphasize the importance of the heterogeneity of the unemployment pool to fully understand unemployment dynamics. In particular, in most European countries the incidence of long term unemployment is big and well known. One of the causes/consequences of long-term unemployment is the skill deterioration of the unemployment pool. In this paper we introduce the loss of skill mechanism, and therefore an heterogeneous labor force, in a New Keynesian framework with search frictions. Calibrating the model to the Spanish economy, we show that the loss of skill mechanism helps to explain the persistence in the response of unemployment to monetary shocks.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-380.

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Length: 34 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:tky:fseres:2005cf380

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  1. Wouter J. den Haan & Christian Haefke & Garey Ramey, 2005. "Turbulence And Unemployment In A Job Matching Model," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1360-1385, December.
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  22. repec:fth:iniesr:481 is not listed on IDEAS
  23. Julen Esteban-Pretel, 2005. "The Effects of the Loss of Skills on Unemployment Fluctuations," CIRJE F-Series CIRJE-F-371, CIRJE, Faculty of Economics, University of Tokyo.
  24. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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Cited by:
  1. Carl E. Walsh & Federico Ravenna, 2010. "Business Cycles and Labor Market Flows with Sequential Screening," 2010 Meeting Papers 571, Society for Economic Dynamics.

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