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Monetary Shocks in a Model with Loss of Skills (Revised in February 2009)

  • Julen Esteban-Pretel

    (Faculty of Economics, University of Tokyo)

  • Elisa Faraglia

    (London Business School)

This paper studies the effects of a monetary shock on real and nominal variables, such as output, inflation and especially unemployment, within a framework which combines a New Keynesian business cycle model model with microfounded labor market in the style of the search and matching literature. We assume that unemployed workers can lose their skill over time and show that this mechanism helps explain the slugish response of unemployment to monetary shocks observed in the data, while also replicating the behavior of output, inflation and employment.

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Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-053.

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Length: 34 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cfi:fseres:cf053
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  1. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, vol. 47(187), pages 247-83, August.
  2. Olympia Bover & Manuel Arellano & Samuel Bentolila, 2002. "Unemployment Duration, Benefit Duration and the Business Cycle," Economic Journal, Royal Economic Society, vol. 112(479), pages 223-265, April.
  3. Acemoglu, Daron, 1995. "Public Policy in a Model of Long-Term Unemployment," Economica, London School of Economics and Political Science, vol. 62(246), pages 161-78, May.
  4. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, vol. 67(1), pages 147-162, January.
  5. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  6. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 19 pages.
  7. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  8. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
  9. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September.
  10. Christopher A. Pissarides, 1992. "Loss of Skill During Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1371-1391.
  11. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  12. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  13. repec:hhs:iuiwop:481 is not listed on IDEAS
  14. 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.
  15. Larsen, Birthe, 2001. "Minimum wages, technological progress and loss of skill," European Economic Review, Elsevier, vol. 45(8), pages 1521-1544, August.
  16. Coles, Melvyn & Masters, Adrian, 2000. "Retraining and long-term unemployment in a model of unlearning by not doing," European Economic Review, Elsevier, vol. 44(9), pages 1801-1822, October.
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