Unemployment and Business Cycles. Issue 4 (July 2016)

• Record Type: Journal Article
• Authors: Christiano, Lawrence J.; Eichenbaum, Martin S.; Trabandt, Mathias
• Is Part Of: Econometrica. Volume 84:Issue 4(2016:Jul.)
• Page Start: 1523
• Page End: 1569
• Publication Date: 2016-07
• Subjects: Search and matching -- unemployment -- business cycles -- wage inertia -- Nash bargaining -- alternating offer bargaining -- wage rules -- unemployment benefits -- Bayesian estimation; Econometrics -- Periodicals; Economics, Mathematical -- Periodicals; Economics -- Periodicals; Économétrie -- Périodiques; Mathématiques économiques -- Périodiques; Économie politique -- Périodiques; 330.05
• DOI: 10.3982/ECTA11776
• Languages: English
• ISSNs: 0012-9682

Abstract

Abstract : 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.