The importance of hiring frictions in business cycles

Hiring is a costly activity reflecting firms' investment in their workers. Microdata show that hiring costs involve production disruption. Thus, cyclical fluctuations the value of output, induced by price frictions, have consequences for optimal allocation activities. We outline mechanism based on markup fluctuations, placing emphasis frictions interacting with frictions. This generates strong propagation and amplification all key macroeconomic variables response to technology shocks mutes traditional transmission monetary policy shocks. A local projection analysis aggregate U.S. data shows empirical results, including cyclicality markups, are consistent model's impulse functions.