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Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions

Abstract : Goods market frictions drastically change the dynamics of the labor market, both in terms of persistence and volatility. In a model with three imperfect markets – goods, labor, and credit – we find that credit and goods market imperfections are substitutable in raising volatility. Goods market frictions are unique in generating persistence. Two key mechanisms in the goods market generate large hump-shaped responses to productivity shocks: countercyclical goods market tightness and prices alter future profit flows and raise persistence; procyclical search effort of consumers and firms raises amplification. Goods market frictions are thus key in understanding labor market dynamics.
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Submitted on : Thursday, October 21, 2021 - 9:20:48 PM
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Nicolas Petrosky-Nadeau, Etienne Wasmer. Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions. Journal of Monetary Economics, 2015, 72, pp.97 - 113. ⟨10.1016/j.jmoneco.2015.01.006⟩. ⟨hal-03392977⟩

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