Macroeconomic dynamics in a model of goods,labor, and credit market frictions |
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| Institution: | 1. Federal Reserve Bank of San Francisco, 101 Market St., San Francisco, CA 94105, United States;2. Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213, United States;3. Sciences Po, Paris, Departement d?Economie, 28 Rue des Saint-Pères, 75007 Paris, France;1. University of California, Santa Barbara, United States;2. Department of Economics, University of Bologna, Piazza Scaravilli 2, 40126 Bologna (BO), Italy;1. Department of Economics, New York University, 19 W 4th Street, New York, NY 10012, United States;2. Research Department, Federal Reserve Bank of Richmond, United States;3. Research Department, Federal Reserve Bank of New York, United States;1. School of Economics, University of Edinburgh, 31 Buccleuch Place, Edinburgh EH8 9JT, United Kingdom;2. Federal Reserve Bank of San Francisco, United States;3. Federal Reserve Bank of New York, United States;1. Federal Reserve Bank of Chicago and NBER, United States;2. The World Bank, United States;3. Washington University in St. Louis, Federal Reserve Bank of St. Louis, and NBER, United States;1. Department of Economics, University of Bologna, Piazza Scaravilli 2 - 40126 Bologna (Italy);2. University of Bologna and OECD, Economics Department - OECD, 2 rue André Pascal, 75775 Paris |
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| 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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| Keywords: | Goods market search Labor market dynamics Propagation Credit market frictions |
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