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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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File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbfuzetek/WP_2011_04.pdf
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Paper provided by Magyar Nemzeti Bank (the 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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  18. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  19. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
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