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Unemployment and business cycles. (English) Zbl 1420.91321

Summary: 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.

MSC:

91B64 Macroeconomic theory (monetary models, models of taxation)
91B40 Labor market, contracts (MSC2010)
91B50 General equilibrium theory
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