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Search, Nash Bargaining and Rule of Thumb Consumers

  • José Emilio Boscá
  • Rafael Domenech
  • Javier Ferri

This paper analyses the effects of introducing typical Keynesian features, namely rule-of-thumb consumers and consumption habits, into a standard labour market search model. It is a well-known fact that labour market matching with Nash-wage bargaining improves the ability of the standard real business cycle model to replicate some of the cyclical properties featuring the labour market. However, when habits and rule-of-thumb consumers are taken into account, the labour market search model gains extra power to reproduce some of the stylised facts characterising the US labour market, as well as other business cycle facts concerning aggregate consumption and investment behaviour.

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Paper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 0912.

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Length: 32 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:bbv:wpaper:0912
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