Monetary Persistence and the Labor Market: A New Perspective

36 Pages Posted: 8 Feb 2010

See all articles by Wolfgang Lechthaler

Wolfgang Lechthaler

Institute for the World Economy

Christian Merkl

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg; IZA Institute of Labor Economics

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: January 2010

Abstract

In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.

Keywords: monetary persistence, labor market, hiring and firing costs

JEL Classification: A00, A10, A11, E24, E32, E52, J23

Suggested Citation

Lechthaler, Wolfgang and Merkl, Christian and Snower, Dennis J., Monetary Persistence and the Labor Market: A New Perspective (January 2010). CESifo Working Paper Series No. 2935, Available at SSRN: https://ssrn.com/abstract=1549511 or http://dx.doi.org/10.2139/ssrn.1549511

Wolfgang Lechthaler

Institute for the World Economy ( email )

Düsternbrooker Weg 120
Kiel, D-24105
Germany

HOME PAGE: http://www.ifw-kiel.de/kiel-institute-for-the-world-economy/view?set_language=en

Christian Merkl

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Dennis J. Snower (Contact Author)

University of Kiel - Institute for World Economics (IfW) ( email )

Duesternbrooker Weg 120
D-24118 Kiel
Germany
+49+431-8814-235 (Phone)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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