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Search Unemployment in a Dynamic New Keynesian Model of the Business Cycle

  • Gerke, Rafael
  • Rubart, Jens

The monetary transmission mechanism plays an important role in studying the effects of monetary policy on the real side of the economy. At least since Chari et al. (2000) it is generally accepted that new keynesian models of the business cycle display a "persistence" problem. In this paper, we follow the approach of Walsh (2002) and include search unemployment in a dynamic new keynesian model of the business cycle in order to study the effects of a monetary shock. After deriving the equilibrium solution of the model, we study the behavior of the impulse response functions due to a monetary shock. To complete our analysis we confront the results of our simulation to time series data for the U.S., U.K. and Germany. Our main result is that the introduction of search unemployment does improve the capability of the model to reproduce some stylized facts of the monetary transmission mechanism, however to a less extent than expected.

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Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 37308.

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Date of creation: Feb 2003
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Publication status: Published in Darmstadt Discussion Papers in Economics . 119 (2003-02)
Handle: RePEc:dar:ddpeco:37308
Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/37308/
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