Labor Market Frictions and the International Propagation Mechanism

Lise Patureau ()

No 2009-05, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: The paper investigates the determinants of international business cycle comovement in a two-country Dynamic Stochastic General Equilibrium (DSGE) model featured by monopolistic competition and nominal price rigidity, following so the New Open Economy Macroeconomy (NOEM) literature. Within this framework, we assess the role of labor market search and matching frictions in the international propagation of supply and monetary shocks. Our results show that labor market frictions improve the ability of the New Open Economy Macroeconomy framework to account for international business cycles comovement. In particular, the NOEM model with labor market search is consistent with the international propagation mechanism of monetary shocks identified in the data. Through their impact on labor market dynamics, labor market institutions affect the magnitude of international comovement. Business cycle synchronization is thus found to increase with the generosity of the unemployment benefits system, whereas it decreases with the strictness of employment protection.

Keywords: International business cycles; Search; Labor market institutions; Wage bargaining; International transmission of shocks (search for similar items in EconPapers)
JEL-codes: E24 E32 F41 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-lab, nep-mac and nep-opm
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Citations: View citations in EconPapers (1)

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Journal Article: Labor market frictions and the international propagation mechanism (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2009-05

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