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Unemployment, Job Flows and Hours in a New Keynesian Model

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  • Richard Holt

    (Edinburgh University)

Abstract

New Keynesian models attempt to account for economic fluctuations under nominal rigidities without modelling unemployment. They struggle to generate observed output and inflation persistence. To address these issues, recent research embeds labour search with matching frictions in a New Keynesian framework. Models with labour market search, matching and endogenous job destruction, feature unemployment, but generate an upward sloping Beveridge curve and overly volatile gross job flows. By introducing a second margin, hours, in the adjustment of labour input I obtain a negative unemployment-vacancy correlation and plausible gross job flow volatilities without affecting the desirable persistence properties of the model. I show that these results are affected by real wage rigidity, endogenous job destruction and capital adjustment costs

Suggested Citation

  • Richard Holt, 2007. "Unemployment, Job Flows and Hours in a New Keynesian Model," Money Macro and Finance (MMF) Research Group Conference 2006 138, Money Macro and Finance Research Group.
    • Handle: RePEc:mmf:mmfc06:138
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    References listed on IDEAS

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    Cited by:

    1. Holt Richard, 2008. "Job Reallocation, Unemployment and Hours in a New Keynesian Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-47, August.

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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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