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Unemployment and Business Cycles
Author(s) -
Christiano Lawrence J.,
Eichenbaum Martin S.,
Trabandt Mathias
Publication year - 2016
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta11776
Subject(s) - economics , new keynesian economics , business cycle , unemployment , wage , matching (statistics) , negotiation , inertia , monetary policy , efficiency wage , inflation (cosmology) , duration (music) , wage bargaining , econometrics , keynesian economics , macroeconomics , labour economics , art , statistics , physics , mathematics , literature , classical mechanics , theoretical physics , political science , law
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.