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Labor Market Participation, Unemployment and Monetary Policy

  • Alessia Campolmi

    ()

    (Central European University; Magyar Nemzeti Bank (central bank of Hungary))

  • Stefano Gnocchi

    ()

    (Universitat Autonoma de Barcelona)

In the present paper we examine how the introduction of endogenous participation in an otherwise standard DSGE model with matching frictions and nominal rigidities affects business cycle dynamics and monetary policy. The contribution of the paper is threefold: first, we show that the model provides a good fit for employment and unemployment volatility, as well as participation volatility and its correlation with output for US data. Second, we show that in such a model, and contrary to a model with exogenous participation, a monetary authority that becomes more aggressive in fighting inflation decreases the volatility of employment and unemployment. Finally, we show the role of search costs in shaping those results.

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Paper provided by Magyar Nemzeti Bank (Central Bank of Hungary) in its series MNB Working Papers with number 2011/4.

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Length: 46 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mnb:wpaper:2011/4
Contact details of provider: Web page: http://www.mnb.hu/

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  30. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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