Productivity, aggregate demand and unemployment fluctuations

Régis Barnichon

No 2008-47, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper presents new empirical evidence on the cyclical behavior of US unemployment that poses a challenge to standard search and matching models. The correlation between cyclical unemployment and the cyclical component of labor productivity switched sign in the mid 80s: from negative it became positive, while standard search models imply a negative correlation. I argue that the inconsistency arises because search models do not allow output to be demand determined in the short run, and I present a search model with nominal rigidities that can rationalize the empirical findings. In addition, I show that the interaction of hiring frictions and nominal frictions can generate a new propagation mechanism absent in standard New-Keynesian models.

Keywords: Unemployment; Labor productivity (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Productivity, Aggregate Demand and Unemployment Fluctuations (2007)
Working Paper: Productivity, aggregate demand and unemployment fluctuations (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2008-47

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