Working Paper: NBER ID: w19207
Authors: Nicolas Petrosky-Nadeau; Lu Zhang
Abstract: A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the large unemployment dynamics in the Great Depression. The limited response of wages to labor market conditions from credible bargaining and the congestion externality from matching frictions cause the unemployment rate to rise sharply in recessions but decline gradually in booms. The frequency, severity, and persistence of unemployment crises in the model are quantitatively consistent with U.S. historical time series.
Keywords: No keywords provided
JEL Codes: E24; E32; G01; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search and matching model (J69) | significant unemployment fluctuations (J64) |
| credible bargaining framework (C78) | equilibrium wage (J31) |
| equilibrium wage (J31) | unemployment crises (J64) |
| decrease in labor productivity (J29) | increase in unemployment rates (J64) |
| bargaining breakdown probabilities and delaying costs (C79) | wage rigidity (J31) |
| wage rigidity (J31) | unemployment dynamics (J64) |
| model parameters (C51) | unemployment behaviors (J65) |
| model predictions of unemployment volatility (J64) | historical data (Y10) |