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Unemployment, Job Flows and Hours in a New Keynesian Model

Richard Holt

No 138, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: New Keynesian models attempt to account for economic fluctuations under nominal rigidities without modelling unemployment. They struggle to generate observed output and inflation persistence. To address these issues, recent research embeds labour search with matching frictions in a New Keynesian framework. Models with labour market search, matching and endogenous job destruction, feature unemployment, but generate an upward sloping Beveridge curve and overly volatile gross job flows. By introducing a second margin, hours, in the adjustment of labour input I obtain a negative unemployment-vacancy correlation and plausible gross job flow volatilities without affecting the desirable persistence properties of the model. I show that these results are affected by real wage rigidity, endogenous job destruction and capital adjustment costs

Keywords: Beveridge Curve; Hours; Gross Job Flows; Inflation (search for similar items in EconPapers)
JEL-codes: E24 E31 J64 (search for similar items in EconPapers)
Date: 2007-02-02
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
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