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: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper shows that goods-market frictions drastically change the dynamics of the labor market, bridging the gap with the data both in terms of persistence and volatility. In a DSGE 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 however unique in generating persistence. The two key mechanisms generating autocorrelation in growth rates and the hump-shaped pattern in the response to productivity shocks are related to the goods market: i) countercyclical dynamics of goods market tightness and prices, which alter future profit flows and raise persistence and ii) procyclical search effort in the goods market, by either consumers, firms or both, raises both amplification and persistence. Expanding our knowledge of goods market frictions is thus needed for a full account of labor market dynamics.

Date: 2014-02
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01073540
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Related works:
Journal Article: Macroeconomic dynamics in a model of goods, labor, and credit market frictions (2015)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2015)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2015)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2014)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2014)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2011)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2011)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions (2011)
Working Paper: Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions
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