Do general equilibrium effects matter for labor market dynamics?

Noritaka Kudoh and Hiroaki Miyamoto

Economic Modelling, 2023, vol. 119, issue C

Abstract: Business cycle models with search-matching frictions are studied to evaluate the importance of general equilibrium effects generated by movements in the stochastic discount factor and the income effect on labor supply. Without variable work hours, the general equilibrium effect works only through the stochastic discount factor and is quantitatively very weak. With variable work hours, the income effect generates procyclical movements in the value of leisure and the marginal hourly wage rate. This effect is sizeable and dampens labor market fluctuations.

Keywords: Labor market search; Stochastic discount factor; Unemployment volatility (search for similar items in EconPapers)
JEL-codes: E32 J20 J64 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003455

DOI: 10.1016/j.econmod.2022.106108

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