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(Un)Employment Dynamics: The Case of Monetary Policy Shocks

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  • Helge Braun

    (Department of Economics Northwestern University)

Abstract

This paper estimates an identified VAR on US data to gauge the dynamic response of the job finding rate, the worker separation rate, and vacancies to monetary policy shocks. I develop a general equilibrium model that can account for the large and persistent responses of vacancies, the job finding rate, the smaller but distinct response of the separation rate, and the inertial response of inflation. The model incorporates labor market frictions, capital accumulation, and nominal price rigidities. Special attention is paid to the role of different propagation mechanisms and the impact of search frictions on marginal costs. Estimates of selected parameters of the model show that wage rigidity, moderate search costs, and a high value of non-market activities are important in explaining the dynamic response of the economy. The analysis extends to a broader set of aggregate shocks and can be used to understand and design monetary, labor market, and other policies in the presence of labor market frictions

Suggested Citation

  • Helge Braun, 2006. "(Un)Employment Dynamics: The Case of Monetary Policy Shocks," 2006 Meeting Papers 87, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:87
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    References listed on IDEAS

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    Cited by:

    1. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.

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    More about this item

    Keywords

    Unemployment; Inflation; Labor Market Frictions;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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