25 Years IWH

Unemployment and Business Cycles

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.

15. July 2016

Authors Mathias Trabandt Lawrence J. Christiano Martin S. Eichenbaum

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Professor Dr Mathias Trabandt
Professor Dr Mathias Trabandt
Economist

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