Can market-clearing models explain U.S. labor market fluctuations?
Throughout the past two decades, market-clearing models of the business cycle have been praised for their ability to explain key empirical features of the post-war U.S. business cycle. Real business cycle (RBC) theory shows that in a model grounded in microeconomic foundations, disturbances to national productivity can explain how aggregate variables such as GDP, consumption and investment behave over time, relative to each other. One of the primary weaknesses of the standard RBC model, however, is its inability to account for some important aspects of U.S. labor market fluctuations. In this article, Victor E. Li summarizes important U.S. business cycle facts and examines how and why these market-clearing models have so much difficulty explaining the mannner in which these facts pertain to the labor market. Li then develops a simple market-clearing framework that demonstrates how a more realistic treatment of unemployment and incomplete risk-sharing may provide an alternative approach to better account for these labor market facts. In particular, Li looks at the situation where the risk of being unemployed cannot be completely shared across all individuals when there are unexpected aggregate economic shocks.
Volume (Year): (1999)
Issue (Month): Jul ()
|Contact details of provider:|| Postal: |
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.stls.frb.org/research/order/pubform.html Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hansen, Gary D., 1985.
"Indivisible labor and the business cycle,"
Journal of Monetary Economics,
Elsevier, vol. 16(3), pages 309-327, November.
- Lawrence J. Christiano & Martin Eichenbaum, 1990.
"Current real business cycle theories and aggregate labor market fluctuations,"
Working Paper Series, Macroeconomic Issues
90, Federal Reserve Bank of Chicago.
- Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
- Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
- Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
- Robert J. Hodrick & Edward Prescott, 1981.
"Post-War U.S. Business Cycles: An Empirical Investigation,"
451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
- 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.
- Jess Benhabib & Richard Rogerson & Randall Wright, 1991.
"Homework in macroeconomics: household production and aggregate fluctuations,"
135, Federal Reserve Bank of Minneapolis.
- Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
- Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland.
- Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
- Michael R. Pakko, 1997. "The business cycle and chain-weighted GDP: has our perspective changed?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 39-49.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:1999:i:jul:p:35-49:n:v.81no.4. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If references are entirely missing, you can add them using this form.