Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/red/sed011/119.html
   My bibliography  Save this paper

Propagation in a Model of Goods, Labor and Financial Market Frictions

Author

Listed:
  • Etienne Wasmer

    (Sciences Po, Paris)

  • Nicolas Petrosky-Nadeau

    (Carnegie Mellon University)

Abstract
Investigating mechanisms of propagation has been central to the business cycle research agenda since its inception. Recent search models of the labor market fail in generating both the size and the persistence of their of central variables to productivity shocks, as does the RBC model in the case of output. Building a model with three imperfect markets - goods, labor and credit -, we find that goods market frictions drastically change the qualitative and quantitative dynamics of labor market variables, leading to significant improvements in bridging the gap with the data both in terms of persistence and volatility. Two factors affecting the expected path of the value to hiring a worker generate persistence: first, the expected dynamics of congestion on goods market, which depends on consumers' search for goods and the entry of new products; and second, the expected dynamics of prices, which alter future profit flows. In the absence of these frictions, there is no persistence in the growth rates, and little amplification, of labor market variables.

Suggested Citation

  • Etienne Wasmer & Nicolas Petrosky-Nadeau, 2011. "Propagation in a Model of Goods, Labor and Financial Market Frictions," 2011 Meeting Papers 119, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:119
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2011/paper_119.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Kjetil Storesletten & Jose-Victor Rios Rull & Yan Bai, 2011. "Demand Shocks that Look Like Productivity Shocks," 2011 Meeting Papers 99, Society for Economic Dynamics.
    3. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    4. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    5. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    6. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    7. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-959, November.
    8. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    9. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    10. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    11. Nicolas Petrosky-Nadeau, 2014. "Credit, Vacancies and Unemployment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 191-205, April.
    12. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186, National Bureau of Economic Research, Inc.
    13. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    14. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, February.
    15. Nicolas Petrosky-Nadeau & Etienne Wasmer, 2013. "The Cyclical Volatility of Labor Markets under Frictional Financial Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 193-221, January.
    16. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    17. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    18. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
    19. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 819-863.
    20. Giovanni Dell'Ariccia & Pietro Garibaldi, 2005. "Gross Credit Flows," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 665-685.
    21. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    22. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    23. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h481p4obg is not listed on IDEAS
    2. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h481p4obg is not listed on IDEAS
    3. repec:hal:wpspec:info:hdl:2441/5l6uh8ogmqildh09h481p4obg is not listed on IDEAS
    4. Wasmer, Etienne, 2011. "A Steady-State Model of a Non-Walrasian Economy with Three Imperfect Markets," IZA Discussion Papers 5758, Institute of Labor Economics (IZA).
    5. Etienne Wasmer, 2011. "A steady-state model of a non-walrasian economy with three imperfect markets," SciencePo Working papers hal-00972914, HAL.
    6. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h481p4obg is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.
    2. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5 is not listed on IDEAS
    3. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5 is not listed on IDEAS
    4. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5 is not listed on IDEAS
    5. Nicolas Petrovsky-Nadeau & Etienne Wasmer, 2011. "Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions," SciencePo Working papers hal-00972918, HAL.
    6. repec:hal:wpspec:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5 is not listed on IDEAS
    7. Nicolas Petrosky-Nadeau & Etienne Wasmer, 2013. "The Cyclical Volatility of Labor Markets under Frictional Financial Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 193-221, January.
    8. repec:hal:wpspec:info:hdl:2441/5l6uh8ogmqildh09h48226q18 is not listed on IDEAS
    9. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h48226q18 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h48226q18 is not listed on IDEAS
    11. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h48226q18 is not listed on IDEAS
    12. repec:spo:wpecon:info:hdl:2441/1787nsa6d1927a90u4bkkombn4 is not listed on IDEAS
    13. Nicolas Petrovsky-Nadeau & Etienne Wasmer, 2010. "The Cyclical Volatility of Labor Markets under Frictional Financial Markets," SciencePo Working papers hal-00972916, HAL.
    14. repec:hal:spmain:info:hdl:2441/5por5bt92h8l0bc7ls4elmcc0b is not listed on IDEAS
    15. repec:spo:wpmain:info:hdl:2441/5por5bt92h8l0bc7ls4elmcc0b is not listed on IDEAS
    16. repec:hal:wpspec:info:hdl:2441/1787nsa6d1927a90u4bkkombn4 is not listed on IDEAS
    17. repec:hal:spmain:info:hdl:2441/1787nsa6d1927a90u4bkkombn4 is not listed on IDEAS
    18. repec:spo:wpmain:info:hdl:2441/1787nsa6d1927a90u4bkkombn4 is not listed on IDEAS
    19. Nicolas Petrosky-Nadeau & Etienne Wasmer, 2015. "Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions," SciencePo Working papers hal-03392977, HAL.
    20. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    21. Hristov, Atanas, 2015. "The high sensitivity of employment to agency costs: The relevance of wage rigidity," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 137-154.
    22. F. Di Pace & K. Mitra & S. Zhang, 2021. "Adaptive Learning and Labor Market Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(2-3), pages 441-475, March.
    23. Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    24. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    25. Eleni Iliopulos & François Langot & Thepthida Sopraseuth, 2019. "Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(8), pages 2207-2237, December.
    26. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, February.
    27. Liu, Zheng & Miao, Jianjun & Zha, Tao, 2016. "Land prices and unemployment," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 86-105.
    28. Miquel Faig, 2008. "Labor Market Cycles and Unemployment Insurance Eligibility," 2008 Meeting Papers 183, Society for Economic Dynamics.
    29. Garín, Julio & Lester, Robert, 2019. "The Opportunity Cost(S) Of Employment And Search Intensity," Macroeconomic Dynamics, Cambridge University Press, vol. 23(1), pages 216-239, January.
    30. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    31. James Costain & Marcel Jansen, 2010. "Employment Fluctuations with Downward Wage Rigidity: The Role of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 782-811, December.
    32. Masanori Kashiwagi, 2015. "The Cyclical Properties of Unemployment and Vacancies in Taiwan," Pacific Economic Review, Wiley Blackwell, vol. 20(4), pages 588-607, October.
    33. David Andolfatto, 2007. "Search Models of Unemployment," Discussion Papers dp07-01, Department of Economics, Simon Fraser University.
    34. Sniekers, F.J.T., 2013. "Endogenous Beveridge cycles and the volatility of unemployment," CeNDEF Working Papers 13-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed011:119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.