Shooting the Auctioneer / Roger E. A. Farmer, Andrew Hollenhorst.

Format:

Book

Author/Creator:

Farmer, Roger E. A.

Contributor:

National Bureau of Economic Research.

Hollenhorst, Andrew.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12584.

NBER working paper series no. w12584

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

Most dynamic stochastic general equilibrium models of the macroeconomy assume that labor is traded in a spot market. Two exceptions by David Andolfatto and Monika Merz combine a two-sided search model with a one-sector real business cycle model. These hybrid models are successful, in some dimensions, but they cannot account for observed volatility in unemployment and vacancies. Following suggestions by Robert Hall and Robert Shimer, this paper shows that a relatively standard DSGE model with sticky wages can account for these facts. Using a second-order approximation to the policy function we simulate moments of an artificial economy with and without sticky wages and we document the dependence of unemployment and vacancy volatility on two key parameters; the disutility of effort and the degree of wage stickiness. We compute the welfare costs of the sticky wage equilibrium and find them to be small.

Notes:

Print version record

October 2006.