to unemployment surges, as firms are forced to cutcosts when financing becomes expensive or is no longer available. As a … result, allcountries with risk premium shocks saw unemployment surge, even as euro area corecountries managed to contain … unemployment as firms hoarded labor during thedownturn. Most striking, wage bills in euro area crisis countries and the …

unemployment. This paper examines several aspects of the adjustment,focusing on (i) evidence of increased labor market frictions …

unemployment. As such, our work contributes to resolving twolimitations of current general equilibrium labor-search theory: under … standard calibrations modelswithout OTJ search generate implausibly low unemployment volatility, while models with OTJsearch … generate unemployment volatility closer to the data but at the expense of implausibly lowconsumption and labor …

inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the average … convergence of inflation to target over the next two years. Monetary policy will thus need to remain restrictive to anchor …

-run Phillips curve between inflation and unemployment and a trade-off between price distortions and output hysteresis that change …Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses … the welfare-maximizing inflation level. For a plausible set of parameters, the optimal inflation target is in excess of …