A NOTE ON BUSINESS-CYCLE PROPERTIES IN FRICTIONAL LABOR MARKETS

Chia-Hui Lu

Macroeconomic Dynamics, 2018, vol. 22, issue 5, 1370-1389

Abstract: This paper builds a standard search model with flexible prices and wages, and extensive and intensive labor adjustments. Money is introduced into the model through a cash-in-advance constraint in which only consumption is cash constrained. The model reproduces labor-market dynamics under a productivity shock and/or a monetary shock. I can replicate the Beveridge and Phillips curves that are observed in the data, and do not need to rely on the New Keynesian model or real wage rigidity. I find that the nonexistence of an extensive margin and different money mechanisms, such as cash constraints on investment and money in the utility function, do not change the above replications. Furthermore, I can still replicate the Beveridge curve even without money or with rigid prices.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:22:y:2018:i:05:p:1370-1389_00

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