Anticipated Growth and Business Cycles in Matching Models

Wouter Den Haan and Georg Kaltenbrunner
Authors registered in the RePEc Author Service: Wouter Denhaan (wjdenhaan@gmail.com)

No 6063, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Positive news about future productivity growth causes a contraction in most neoclassical business cycle models, which is counterfactual. We show that a business cycle model that incorporates the standard matching framework can generate an expansion. Although the wealth effect of an increase in expected productivity induces workers to reduce their labour supply, the matching friction has the opposite effect leaving labour supply roughly unaffected. Employment increases because the matching friction also induces firms to post more vacancies. This translates into additional resources, which makes it possible for both consumption and investment to increase in response to positive news about future productivity growth before the actual increase in productivity materializes.

Keywords: Labour force participation; Pigou cycles; Productivity growth (search for similar items in EconPapers)
JEL-codes: E24 E32 J41 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Journal Article: Anticipated growth and business cycles in matching models (2009)
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