Working Paper: NBER ID: w19265
Authors: Lawrence J. Christiano; Martin S. Eichenbaum; Mathias Trabandt
Abstract: 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.
Keywords: Unemployment; Business Cycles; Labor Market; Wage Rigidity
JEL Codes: E24; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy shock (E39) | inflation (E31) |
| inflation (E31) | real wages (J31) |
| real wages (J31) | firms' marginal costs (D21) |
| increase in unemployment benefits (J65) | real wage (J31) |
| real wage (J31) | firms' incentives to post vacancies (J68) |
| firms' incentives to post vacancies (J68) | unemployment (J64) |
| increase in unemployment benefits (J65) | unemployment (J64) |
| increase in unemployment benefits (ZLB binding) (J68) | unemployment (J64) |
| price stickiness (L11) | magnitude of effects of unemployment benefits (J65) |