Return Predictability and Labor Market Frictions in a Real Business Cycle Model

The Labor Market in Real Business Cycle Theory

Disinflation with labor market frictions

This paper studies disinflationary shocks in a non-linear New Keynesian model with search and matching frictions and moral hazard in the labor markets. Our focus is on understanding the wage formation process as well as welfare costs of disinflations in the presence of such labor market frictions. The presence of imperfect information in labor markets imposes a lower bound on worker surplus tha...

Labor-Market Frictions and Optimal Inflation∗

In main theories of monetary non-neutrality the Ramsey optimal inflation rate varies between the negative of the real interest rate and zero. This paper explores how the interaction of nominal wageand search and matching frictions affect the planners choice. We show that adding the combination of such frictions to the canonical monetary model can generate an optimal inflation that is significan...

A Non-Walrasian Labor Market and the European Business Cycle

This paper investigates to what extent a New Keynesian, monetary model with the addition of a microfounded, non-Walrasian labor market based on union bargaining is able to replicate key aspects of the business cycle. The presence of a representative union offers an explanation for two features of the cycle. First, it generates an endogenous mechanism which produces persistent responses of the e...

Aggregate Asset Pricing with Labor Market Frictions ∗

Even though labor income represents about two thirds of disposal income to household, its role has largely been neglected by asset pricing models. In this paper, we solve a general equilibrium model which can both rationalize important feature of labor markets as well as financial markets. To this end, we embed labor market search frictions into a business cycle model where the representative h...