Unemployment and Business Cycles

Lawrence Christiano, Martin Eichenbaum and Mathias Trabandt

Econometrica, 2016, vol. 84, 1523-1569

Abstract: We develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, we do not impose wage inertia. Instead we derive wage inertia from our specification of how firms and workers negotiate wages. Our model outperforms a variant of the standard New Keynesian Calvo sticky wage model. According to our estimated model, there is a critical interaction between the degree of price stickiness, monetary policy, and the duration of an increase in unemployment benefits.

Date: 2016
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Related works:
Journal Article: Unemployment and Business Cycles (2016)
Working Paper: Unemployment and business cycles (2013)
Working Paper: Unemployment and Business Cycles (2013)
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