In the context of a standard equilibrium matching framework, this paper shows how a duration dependent unemployment insurance (UI) system stabilises unemployment levels over the business cycle. It establishes that reentitlement effects induced by a finite duration UI program generate intertemporal tranfers from firms that hire in future booms to firms that hire in current recessions. These tran...

This introduces the symposium on sunspots and lotteries. Two stochastic generalequilibrium concepts, sunspot equilibrium (SE) and lottery equilibrium (LE), are compared. It is shown that, for some general, pure-exchange economies which allow for consumption nonconvexities or moral hazards, the set of LE allocations is equivalent to the set of SE allocations provided that the randomizing device ...

Okun’s coefficient is estimated from U.S. quarterly data covering the period 1947:1–1992:2. The cyclical components of unemployment and output are extracted by smoothing using the Kalman filter as applied to Harvey’s structural time series model. The estimated Okun’s coefficient is around 20.38 irrespective of the whether the model used is static or dynamic and irrespective of the lag length in...

The data in Fehr and Tyran (2001) and Petersen and Winn (2014) show that money illusion plays an important role in nominal price adjustment after a fully anticipated negative monetary shock. Money illusion affects subjects’ expectations, and causes pronounced nominal inertia after a negative shock but much less inertia after a positive shock. Thus Petersen and Winn (2014) provide a misleading i...

The Enders and Granger (1998) unit-root test against stationary alternatives with asymmetric adjustment is applied to the extended Nelson and Plosser dataset. The test rejects the unit-root null roughly as frequently as does the ADF test. JEL Classification C32, E32 * Correspondence: Philip Rothman Department of Economics East Carolina University Greenville, NC 27858 Phone: 252-328-6151 Fax: 25...

This paper evaluates the performance of optimal simple policy rules in the presence of news shocks. It is shown that the inclusion of forward-looking elements enhances the performance of simple optimized interest rate rules when agents learn about future disturbances in advance. We provide a rationale for this result by demonstrating that, if shocks are news shocks, the optimal unrestricted con...

In this article consumers need money to reduce their transaction costs. We highlight the existence of indeterminacy under a constant money growth within an endogenous growth framework. Real indeterminacy is avoided by an alternative monetary policy such as the interest pegging. The residual price indeterminacy is also ruled out if this monetary policy is completed by a non-Ricardian ...scal pol...

The extremely weak propagation mechanisms of real business cycle (RBC) models are well acknowledged, and some effort has been devoted to improving the models on this dimension. This paper builds on these efforts to provide an explicit explanation of why various existing RBC models do not replicate real world business cycles, and discusses modifications necessary to bring real business cycle the...

Fairness, Reciprocity, and Wage Rigidity This paper contains a review of empirical work related to wage rigidity, where researchers have collected their own data. The work includes field studies, economic experiments, and psychological surveys. Economists have done the field studies and experiments, and management scientists and experimental psychologists have done the surveys. There is a remar...

In the U.S. labor market, the vacancy-unemployment ratio and employment react sluggishly to productivity shocks. We show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses. Extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics. Creation costs induce entrant firms to smooth the ...