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Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions

Author

Listed:
  • Nicolas Petrosky-Nadeau

    (Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh])

  • Etienne Wasmer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

Goods market frictions drastically change the dynamics of the labor market, both in terms of persistence and volatility. In a model with three imperfect markets – goods, labor, and credit – we find that credit and goods market imperfections are substitutable in raising volatility. Goods market frictions are unique in generating persistence. Two key mechanisms in the goods market generate large hump-shaped responses to productivity shocks: countercyclical goods market tightness and prices alter future profit flows and raise persistence; procyclical search effort of consumers and firms raises amplification. Goods market frictions are thus key in understanding labor market dynamics.

Suggested Citation

  • Nicolas Petrosky-Nadeau & Etienne Wasmer, 2015. "Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions," SciencePo Working papers Main hal-03392977, HAL.
  • Handle: RePEc:hal:spmain:hal-03392977
    DOI: 10.1016/j.jmoneco.2015.01.006
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03392977
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    More about this item

    Keywords

    Goods market search; Labor market dynamics; Propagation; Credit market frictions;
    All these keywords.

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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