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On-the-job search, sticky prices, and persistence

  • Van Zandweghe, Willem

Models of the monetary transmission mechanism often generate empirically implausible business fluctuations. This paper analyzes the role of on-the-job search in the propagation of monetary shocks in a sticky price model with labor market search frictions. Such frictions induce long-term employment relationships, such that the real marginal cost is determined by real wages and the cost of an employment relationship. On-the-job search opens up an extra channel of employment growth that dampens the response of these two components. Because real marginal cost rigidity induces small price adjustments, on-the-job search gives rise to a strong propagation of monetary shocks that increases output persistence.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(09)00182-1
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 3 (March)
Pages: 437-455

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:3:p:437-455
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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