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General Equilibrium Effects and Labor Market Fluctuations

Author

Listed:
  • Noritaka Kudoh

    (kudoh@soec.nagoya-u.ac.jp)

  • Hiroaki Miyamoto

    (Tokyo Metropolitan University)

Abstract

Business cycle models with search-matching frictions are studied to evaluate the importance of general equilibrium effects generated by movements in the stochastic discount factor and the income effect on labor supply. Without variable hours of work, the general equilibrium effect works only through the stochastic discount factor and is quantitatively very weak. With variable hours of work, the income effect generates procyclical movements in the value of leisure and the marginal hourly wage rate. This effect is sizable and dampens labor market fluctuations. We also study discount factor shocks and find that capital formation strongly enhances labor market fluctuations.

Suggested Citation

  • Noritaka Kudoh & Hiroaki Miyamoto, 2021. "General Equilibrium Effects and Labor Market Fluctuations," Working Papers SDES-2021-4, Kochi University of Technology, School of Economics and Management, revised May 2021.
    • Handle: RePEc:kch:wpaper:sdes-2021-4
    as

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    File URL: http://www.souken.kochi-tech.ac.jp/seido/wp/SDES-2021-4.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    labor market search; stochastic discount factor; unemployment volatility;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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