Frictions in the labor market are important for understanding the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces realistic equity premium and...

Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum...

Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum...

Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum...

Market economies are intrinsically unstable. The standard search model of equilibrium unemployment, once solved accurately with a globally nonlinear algorithm, gives rise endogenously to rare disasters. Intuitively, in the presence of cumulatively large negative shocks, inertial wages remain...

volatility puzzles.

Business Cycle Accounting (BCA) is a helpful litmus test for quantitive macroeconomic models. Indeed, deviations from the data and a neo-classical growth model can be summarized as distortion of the efficiency of production or to optimality conditions such as leisure-consumption choices and...

This paper investigates the implications of agency problems on credit markets when vacancy costs require some external financing for the propagation properties of an otherwise standard labor search model. The countercyclical premium on external finance greatly increases the elasticity of...

Investigating mechanisms of propagation has been central to the business cycle research agenda since its inception. Recent search models of the labor market fail in generating both the size and the persistence of their of central variables to productivity shocks, as does the RBC model in the...

This papers investigates the propagation properties of credit market imperfections when they affect the cyclical reallocation of labor. A costly state verification problem in the capital lending relationship leads to endogenous job separations of two types: workers lose their jobs either because...