The Dynamic Correlation Between Growth and Unemployment

We apply the measure of dynamic correlation developed by Croux, Forni and Reichlin (2001) [A measure of comovement for economic variables: theory and empirics. Review of Economics and Statistics 83, 232-241] to the relation between the quarterly rates of unemployment and labor productivity growth for the post-war United-States economy. The application of the dynamic correlation reveals that these variables are strongly related, but in a different manner according to the frequencies considered: negatively at low frequencies and positively at business cycle frequencies.

Elasticity of factor substitution and the rise in labor's share of income during the Great Depression

The sudden rise in labor's share of income during the U.S. Great Depression of 1929-1933 is examined. To explain this phenomenon, the deflation-based model of the Great Depression of Bordo et al. (2000) [Bordo, M.D.; Erceg, C.J.; Evans, C.L. "Money, Sticky Wages, and the Great Depression." American Economic Review 90:5, 1447-63.] is extended to the case of a Constant Elasticity of factor Substitution (CES) production function. It is shown that considering the low elasticity of factor substitution allows the model to explain the rise in labor's share of income, improves the model's predictions on other macroeconomic variables, and renders the issue of productivity during the Great Depression less puzzling.

Elasticity of factor substitution and the rise in labor's share of income during the Great Depression

The sudden rise in labor's share of income during the U.S. Great Depression of 1929-1933 is examined. To explain this phenomenon, the deflation-based model of the Great Depression of Bordo et al. (2000) [Bordo, M.D.; Erceg, C.J.; Evans, C.L. "Money, Sticky Wages, and the Great Depression." American Economic Review 90:5, 1447-63.] is extended to the case of a Constant Elasticity of factor Substitution (CES) production function. It is shown that considering the low elasticity of factor substitution allows the model to explain the rise in labor's share of income, improves the model's predictions on other macroeconomic variables, and renders the issue of productivity during the Great Depression less puzzling

The scaling function-based estimator of the long memory parameter: a comparative study

In this paper an original estimator of long memory is considered. It is based on the scaling function directly extracted from multifractal formalism. Monte Carlo simulations show that the scaling function gives interesting results, notably in terms of confidence intervals, which are smaller than the usual methods.Long memory

Output persistence in human capital-based growth models

This note explores the persistence properties of a class of models proposed by Jones, Manuelli and Siu (2000) where growth stems from purposeful human capital accumulation. In doing so, we adopt Cogley and Nason's (1995) definition of output persistence. The propagation mechanism exhibited by this class of models appears unable to solve the output persistence puzzle.endogenous growth

The Credit Spread Cycle with Matching Friction

We herein advance a contribution to the theoretical literature on financial frictions and show the significance of the matching mechanism in explaining the countercyclical behavior of interest rate spreads. We demonstrate that when matching friction is associated with a Nash bargaining solution, it provides a satisfactory explanation of the credit spread cycle in response to shocks in production technology or in the cost of banks' resources. During periods of expansion, the credit spread experiences a tightening for two reasons. Firstly, as a result of easier access to loans, entrepreneurs have better opportunities outside a given lending relationship and can negotiate lower interest rates. Secondly, the less selective behavior of entrepreneurs and banks results in the occurrence of fewer productive matches, a fall in the average productivity of matches, and a tightening of the credit spread. Our results also underline the amplification and propagation properties of matching friction, which represent a powerful financial accelerator mechanism.

Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth

This paper studies the co-movements of unemployment and labor productivity growth for the U.S. economy. Measures of co-movements in the frequency domain indicate that co-movements between variables differ strongly according to the frequency. First, long-term and business cycle co-movements are larger than short-term co-movements. Second, co- movements are negative in the short and long run, but positive over the business cycle. A New Keynesian model that combines nominal rigidity on the goods market (sticky prices) and real rigidity on the labor market (fair wages) is shown to be quantitatively consistent with the observed co-movements both in the long term and over the business cycle. However, the model fails to explain the short-term co-movements.growth, unemployment, sticky prices, fair wages, spectral analysis

Are unit root tests useful in the debate over the (non)stationarity of hours worked?

International audienceThe performance of unit root tests on simulated series is compared, using the business-cycle model of Chang et al. (2007) to generate data. Overall, Monte Carlo simulations show that the e¢ cient unit root tests of Ng and Perron (2001) are more powerful than the standard unit root tests. These e¢ cient tests are frequnetly able (i) to reject the unit-root hypothesis on simulated series, using the best speci…-cation of the business-cycle model found by Chang et al. (2007), in which hours worked are stationary with adjustment costs, and (ii) to reduce the gap between the theoretical impulse response functions and those estimated with a Structural VAR model. The results of Monte Carlo simulations show that the hump-shaped behaviour of data can explain the divergence between unit root tests

The quality effect of intrafirm bargaining with endogenous worker flows

This paper proposes a new explanation of the job quality issue in search and matching models, which is not based on market externalities but on strategic interactions within firms through the intrafirm bargaining process. We develop a matching and intrafirm bargaining model in which large firms hire workers on a frictional labour market and decide to destroy low productivity job-worker matches. The coexistence of entry and exit flows of workers in a large firm gives rise to a specific interaction between the firing decision and the intrafirm bargaining process on wages, which causes inefficient decisions to be made on hiring and firing. The sources of inefficiency in this economy are (i) the well-known quantitative effect of intrafirm bargaining, namely the excessive size of the firms concerned, and (ii) a new quality effect, namely the poor quality of the job-worker matches selected by firms.Matching; Intrafirm Bargaining; Worker Flows. JEL Classification: J3; J6.

Strategies for search on the housing market and their implications for price dispersion

When an household needs to change its home, a new house must be bought and the old one must be sold. In order to complete these two transactions, the household can adopt either a sequential or a simultaneous search strategy. In sequential strategies, it first buys (or sells) and only after tries to sell (or buy), to avoid either being homeless or holding two houses, respectively. In the simultaneous strategy, the household tries to buy and sell simultaneously. If the household adopts the simultaneous strategy, it can reduce its search costs, but becomes exposed to the risk of becoming a homeless renter or the owner of two houses. The literature generally considers only the sequential search strategy. However, we show in this article that the simultaneous strategy is (i) generally welfare improving for households, (ii) sometimes the sole equilibrium strategy, and (iii) at the origin of price dispersion on the housing market.