Productivity, Aggregate Demand and Unemployment Fluctuations

Régis Barnichon

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper presents new empirical evidence on the cyclical behavior of US unemployment that poses a challenge to standard search and matching models. The correlation between cyclical unemployment and the cyclical component of labor productivity switched sign at the beginning of the Great Moderation in the mid 80s: from negative it became positive, while standard search models imply a negative correlation. I argue that the inconsistency arises because search models do not allow output to be demand determined in the short run. I present a search model with nominal rigidities that can rationalize the empirical findings, and I document two new facts about the Great Moderation that can account for the large and swift increase in the unemployment-productivity correlation in the mid-80s.

Keywords: Unemployment Fluctuations; Labor productivity; Search and matching model; New-Keynesian model (search for similar items in EconPapers)
JEL-codes: E32 E37 E52 J64 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Productivity, aggregate demand and unemployment fluctuations (2008)
Working Paper: Productivity, aggregate demand and unemployment fluctuations (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0819

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