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An Estimated New-Keynesian Model with Unemployment as Excess Supply of Labor

  • Miguel Casares


    (Departamento de Economía, Universidad Pública de Navarra)

  • Antonio Moreno


    (Departamento de Economía, Universidad de Navarra)

  • Jesús Vázquez


    (Departamento FAE II, Universidad del País Vasco)

Wage stickiness is incorporated to a New-Keynesian model with variable capital in a way that generates endogenous unemployment fluctuations as the log difference between aggregate labor supply and aggregate labor demand. After estimation with U.S. data, the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data. Our results also show that wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations. Compared to an estimated canonical DSGE model without unemployment: wage stickiness is higher, labor supply elasticity is lower, the slope of the New-Keynesian Phillips curve is flatter, and the importance of technology innovations on output growth variability increases.

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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 01/12.

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Length: 47 pages
Date of creation: 30 Jul 2012
Date of revision:
Handle: RePEc:una:unccee:wp0112
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  12. Walsh, Carl E., 2003. "Labor Market Search, Sticky Prices, and Interest Rate Policies," Santa Cruz Department of Economics, Working Paper Series qt6tg550dv, Department of Economics, UC Santa Cruz.
  13. Christiano, Lawrence & Trabandt, Mathias & Walentin, Karl, 2010. "Involuntary unemployment and the business cycle," Working Paper Series 1202, European Central Bank.
  14. Miguel Casares & Antonio Moreno & Jesús Vázquez, 2012. "Wage stickiness and unemployment fluctuations: an alternative approach," SERIEs, Spanish Economic Association, vol. 3(3), pages 395-422, September.
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  20. Miguel Casares, 2007. "Firm-Specific or Household-Specific Sticky Wages in the New Keynesian Model?," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 181-240, December.
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