Involuntary Unemployment and the Business Cycle

Lawrence Christiano, Mathias Trabandt and Karl Walentin

Review of Economic Dynamics, 2021, vol. 39, 26-54

Abstract: Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks. (Copyright: Elsevier)

Keywords: DSGE; Unemployment; Labor force participation; Business cycles; Monetary policy; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E2 E3 E5 J2 J6 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Software Item: Code and data files for "Involuntary Unemployment and the Business Cycle" (2020)
Working Paper: Online Appendix to "Involuntary Unemployment and the Business Cycle" (2020)
Working Paper: Involuntary Unemployment and the Business Cycle (2016)
Working Paper: Involuntary Unemployment and the Business Cycle (2012)
Working Paper: Involuntary unemployment and the business cycle (2010)
Working Paper: Involuntary unemployment and the business cycle (2010)
Working Paper: Involuntary Unemployment and the Business Cycle (2010)
Working Paper: Involuntary Unemployment and the Business Cycle (2010)
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DOI: 10.1016/j.red.2020.05.003

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