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Monetary persistence and the labor market: A new perspective

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  • Lechthaler, Wolfgang
  • Merkl, Christian
  • Snower, Dennis J.

Abstract

In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.

Suggested Citation

  • Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 968-983, May.
    • Handle: RePEc:eee:dyncon:v:34:y:2010:i:5:p:968-983
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    More about this item

    Keywords

    Monetary persistence Labor market Business cycle dynamics Hiring and firing costs;

    JEL classification:

    • A00 - General Economics and Teaching - - General - - - General
    • A10 - General Economics and Teaching - - General Economics - - - General
    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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