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Labor-Market Search and International Business Cycles

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  • Jean-Olivier Hairault

    (Eurequa, Université de Paris I)

Abstract

The objective of this paper is to explain the observed international fluctuations by modifying the traditional modelling of the labor market in the two-country real business cycles model. Our intuition is that labor-market search can be useful to understand the propagation of international fluctuations. Changes in the expected returns to search induce responses in search and recruiting activities, the effects of which are propagated through time via changes in the stock of employment. Given that the technology shock spills over to the other country, domestic and foreign firms start searching at the same time in anticipation. Employment then increases simultaneously and displays a hump-shaped profile in the two countries. This partially curtails the capital outflow from the country which does not benefit from the shock. Introducing in a search framework a non-separability between consumption and leisure in the utility function allows both to solve the consumption puzzle and to complete the explanation of the international comovement puzzle. (Copyright: Elsevier)

Suggested Citation

  • Jean-Olivier Hairault, 2002. "Labor-Market Search and International Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 535-558, July.
    • Handle: RePEc:red:issued:v:5:y:2002:i:3:p:535-558
    DOI: 10.1006/redy.2001.0154
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General

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