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Jobless Recoveries: The Interaction between Financial and Search Frictions

Author

Listed:
  • Dennis Wesselbaum

    () (Department of Economics, University of Otago, New Zealand)

Abstract

This paper establishes a link between labor market frictions and financial market frictions. We present empirical evidence about the relation between search and financial frictions. Then, we build a stylized DSGE model that features this channel. Simulation excercises show that the model with this channel generates a strong internal propagation mechanism, replicates stylized labor market effects of the Great Recession, and, most importantly, creates a jobless recovery.

Suggested Citation

  • Dennis Wesselbaum, 2016. "Jobless Recoveries: The Interaction between Financial and Search Frictions," Working Papers 1603, University of Otago, Department of Economics, revised Feb 2016.
  • Handle: RePEc:otg:wpaper:1603
    as

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    File URL: http://www.otago.ac.nz/economics/otago556617.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    2. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2011. "Introducing financial frictions and unemployment into a small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 1999-2041.
    3. repec:wop:calsdi:97-23 is not listed on IDEAS
    4. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    5. repec:oup:qjecon:v:129:y:2013:i:1:p:1-59 is not listed on IDEAS
    6. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
    7. Nicolas Petrosky-Nadeau, 2014. "Credit, Vacancies and Unemployment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 191-205, April.
    8. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    9. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
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    11. Calvo, Guillermo & Coricelli, Fabrizio & Ottonello, Pablo, 2012. "The Labor Market Consequences of Financial Crises With or Without Inflation: Jobless and Wageless Recoveries," CEPR Discussion Papers 9218, C.E.P.R. Discussion Papers.
    12. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    13. Gadi Barlevy, 2011. "Evaluating the role of labor market mismatch in rising unemployment," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 82-96.
    14. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    15. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    16. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Working Paper 2012/07, Norges Bank.
    17. Davide Furceri & Lorenzo E. Bernal-Verdugo & Dominique M. Guillaume, 2012. "Crises, Labor Market Policy, and Unemployment," IMF Working Papers 12/65, International Monetary Fund.
    18. Francesco Zanetti, 2015. "Financial Shocks and Labor Market Fluctuations," Economics Series Working Papers Number 746, University of Oxford, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Jobless Recoveries: The Interaction between Financial and Search Frictions
      by Christian Zimmermann in NEP-DGE blog on 2017-02-16 22:31:53

    More about this item

    Keywords

    DSGE; Jobless Recovery; Labor Market and Financial Frictions;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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