This paper estimates an identi\u85ed VAR on US data to gauge the dynamic response of the job \u85nding rate, the worker separation rate, and vacancies to monetary policy shocks. I develop a general equilibrium model that can account for the large and persistent responses of vacancies, the job \u85nding rate, the smaller but distinct response of the separation rate, and the inertial response of ination. The model incorporates labor market frictions, capital accumulation, and nominal price rigidities. Special attention is paid to the role of di¤erent propagation mechanisms and the impact of search frictions on marginal costs. Estimates of selected parameters of the model show that wage rigidity, moderate recruiting costs, and a high value of the opportunity costs of employment are important in explaining the dynamic response of the economy. The analysis extends to a broader set of aggregate shocks and can be used to understand and design monetary, labor market, and other policies in the presence of labor market frictions
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