Labor Market Imperfections and the Dynamics of Postwar Business Cycles

Abstract

An estimated dynamic general equilibrium model which features imperfectly competititve households, sticky nominal wages and costly labor input adjustment is shown to be consistent with several stylized aspects of U.S. postwar business cycle dynamics including the positive serial correlation of output, consumption, investment and employment growth over short horizons and the persistent, hump-shaped response of output to innovations in the temporary component.Imperfectly competitive households, Sticky nominal wages, Labor adjustment costs, Business cycles, Endogenous propagation mechanisms