Working Paper: CEPR ID: DP1602
Authors: Joao Gomes; Jeremy Greenwood; Sergio Rebelo
Abstract: A search-theoretic general equilibrium model of frictional unemployment is shown to be consistent with some of the key regularities of unemployment over the business cycle. In the model the return to a job moves stochastically. Agents can choose either to quit and search for a better job, or continue working. Search generates job offers that agents can accept or reject. Two distinguishing features of current work, relative to the existing business cycle literature on labour market fluctuations, are: (i) the decision to accept or reject jobs is modelled explicitly; and (ii) there is imperfect insurance against unemployment.
Keywords: business cycles; unemployment
JEL Codes: E24; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wealth (D31) | Reservation Job Productivity (E23) |
| Reservation Job Productivity (E23) | Likelihood of Remaining Unemployed (J64) |
| Wealth (D31) | Likelihood of Remaining Unemployed (J64) |
| Aggregate Productivity Shocks (O49) | Cyclical Properties of Unemployment (J64) |
| Decision-Making Process of Agents (D80) | Cyclical Properties of Unemployment (J64) |
| Economic Expansions (N12) | Flow Out of Unemployment (J65) |
| Idiosyncratic Shocks (D89) | Determinants of Unemployment (J64) |
| Countercyclical Policy Interventions (E63) | Effectiveness in Addressing Unemployment (J68) |