Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions

Petrosky-Nadeau, Nicolas; Wasmer, Etienne

Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions

Nicolas Petrosky-Nadeau () and Etienne Wasmer
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Nicolas Petrosky-Nadeau: Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh]

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Abstract: Goods market frictions drastically change the dynamics of the labor market, both in terms of persistence and volatility. In a model with three imperfect markets – goods, labor, and credit – we find that credit and goods market imperfections are substitutable in raising volatility. Goods market frictions are unique in generating persistence. Two key mechanisms in the goods market generate large hump-shaped responses to productivity shocks: countercyclical goods market tightness and prices alter future profit flows and raise persistence; procyclical search effort of consumers and firms raises amplification. Goods market frictions are thus key in understanding labor market dynamics.

Keywords: Goods market search; Labor market dynamics; Propagation; Credit market frictions (search for similar items in EconPapers)
Date: 2015-05
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Citations: View citations in EconPapers (65)

Published in Journal of Monetary Economics, 2015, 72, pp.97 - 113. ⟨10.1016/j.jmoneco.2015.01.006⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03392977

DOI: 10.1016/j.jmoneco.2015.01.006

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