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Business cycle with nominal contracts and search frictions

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  • Moon, Weh-Sol
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    This paper examines a dynamic stochastic general equilibrium (DSGE) model containing exible prices, search frictions and nominal wage contracts. It is assumed that the nominal hourly wage rate and the hours of work are jointly determined, so-called efficient bargaining, for each period. The frictional labor markets reasonably reflect the volatility of real variables and the fact that productivity is no longer countercyclical. As contract length increases, the volatilities of the unemployment rate and the vacancy rate increase sharply, but those of output and total hours worked do not appreciably change.

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    File URL: https://mpra.ub.uni-muenchen.de/31716/1/MPRA_paper_31716.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31716.

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    Date of creation: 20 Jun 2011
    Handle: RePEc:pra:mprapa:31716
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