Productivity, aggregate demand and unemployment fluctuations
By: Régis Barnichon.
Contributors: London School of Economics and Political Science. Centre for Economic Performance.
Series: CEP discussion paper -- no. 819
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Published: 2007
Place of publication: London
Language: eng
Format: Electronic resource
Description: This paper presents new empirical evidence on the cyclical behavior of US unemployment that poses a challenge to standard search and matching models. The correlation between cyclical unemployment and the cyclical component of labor productivity switched sign at the beginning of the Great Moderation in the mid 80s: from negative it became positive, while standard search models imply a negative correlation. I argue that the inconsistency arises because search models do not allow output to be demand determined in the short run. I present a search model with nominal rigidities that can rationalize the empirical findings, and I document two new facts about the Great Moderation that can account for the large and swift increase in the unemployment-productivity correlation in the mid-80s.
Notes: Title from publisher's abstract page (viewed on Jan. 3, 2008).

"August 2007."

Includes bibliographical references.

Also available in print.

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