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Macroeconomic dynamics in a model of goods, labor, and credit market frictions

Listed author(s):
  • Petrosky-Nadeau, Nicolas
  • Wasmer, Etienne

Goods market frictions drastically change the dynamics of the labor market, both in terms of persistence and volatility. In a model with three imperfect markets – goods, labor, and credit – we find that credit and goods market imperfections are substitutable in raising volatility. Goods market frictions are unique in generating persistence. Two key mechanisms in the goods market generate large hump-shaped responses to productivity shocks: countercyclical goods market tightness and prices alter future profit flows and raise persistence; procyclical search effort of consumers and firms raises amplification. Goods market frictions are thus key in understanding labor market dynamics.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 72 (2015)
Issue (Month): C ()
Pages: 97-113

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Handle: RePEc:eee:moneco:v:72:y:2015:i:c:p:97-113
DOI: 10.1016/j.jmoneco.2015.01.006
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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