Econometrica: Jul 2016, Volume 84, Issue 4

Unemployment and Business Cycles
p. 1523-1569

Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt

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.

Log In To View Full Content

Supplemental Material

Supplement to "Unemployment and Business Cycles"

This zip file contains the replication files for the manuscript.

Read More View ZIP

Supplement to "Unemployment and Business Cycles"

This appendix contains material not found within the manuscript.

Read More View PDF