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A NOTE ON BUSINESS-CYCLE PROPERTIES IN FRICTIONAL LABOR MARKETS

Published online by Cambridge University Press:  18 January 2018

Chia-Hui Lu
Chia-Hui Lu*
Affiliation:
National Taipei University
*
Address correspondence to: Chia-Hui Lu, Department of Economics, National Taipei University, 151, University Road, San-Shia, 23741 New Taipei, Taiwan; e-mail: [email protected], [email protected]
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Abstract

This paper builds a standard search model with flexible prices and wages, and extensive and intensive labor adjustments. Money is introduced into the model through a cash-in-advance constraint in which only consumption is cash constrained. The model reproduces labor-market dynamics under a productivity shock and/or a monetary shock. I can replicate the Beveridge and Phillips curves that are observed in the data, and do not need to rely on the New Keynesian model or real wage rigidity. I find that the nonexistence of an extensive margin and different money mechanisms, such as cash constraints on investment and money in the utility function, do not change the above replications. Furthermore, I can still replicate the Beveridge curve even without money or with rigid prices.

Keywords

Business CycleSearch and MatchingBeveridge CurvePhillips Curve
Type
Notes
Information
Macroeconomic Dynamics , Volume 22 , Issue 5 , July 2018 , pp. 1370 - 1389
Copyright
Copyright © Cambridge University Press 2018 

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