A number of authors have recently emphasized that the conventional model of unemployment dynamics due to Mortensen and Pissarides has difficulty accounting for the relatively volatile behavior of labor market activity over the business cycle. We address this issue by modifying the MP framework...

We use an estimated monetary business cycle model with search and matching frictions in the labor market and nominal price and wage rigidities to study four countries (the U.S., the U.K., Sweden, and Germany) during the financial crisis and the Great Recession. We estimate the model over the...

We study the importance of financial markets for (un)employment fluctuations in a model with searching and matching frictions where firms issue debt under limited enforcement. Higher debt allows employers to bargain lower wages which in turn increases the incentive to create jobs. The...

We estimate the effects of fiscal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase...

We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We...

We develop a variation of the macroeconomic model with banking in Gertler and Kiyotaki (2011) that allows for liquidity mismatch and bank runs as in Diamond and Dybvig (1983). As in Gertler and Kiyotaki, because bank net worth fluctuates with aggregate production, the spread between the expected...

We develop an analytically tractable Phillips curve based on state-dependent pricing. We differ from the existing literature by considering a local approximation around a zero inflation steady state and introducing idiosyncratic shocks. The resulting Phillips curve is a simple variation of the...

We explore the implications of asset price volatility for the management of monetary policy. We show that it is desirable for central banks to focus on underlying inflationary pressures. Asset prices become relevant only to the extent they may signal potential inflationary or deflationary...

This paper develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the...

The market for high yield (below investment-grade) corporate bonds developed in the middle 1980s. We show that, since this time, the high yield spread has had significant explanatory power for the business cycle. We interpret this finding as possibly symptomatic of financial factors at work in...