NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unemployment Crises

Nicolas Petrosky-Nadeau, Lu Zhang

NBER Working Paper No. 19207
Issued in July 2013
NBER Program(s):   AP   CF   EFG   LS

A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the large unemployment dynamics in the Great Depression. The limited response of wages to labor market conditions from credible bargaining and the congestion externality from matching frictions cause the unemployment rate to rise sharply in recessions but decline gradually in booms. The frequency, severity, and persistence of unemployment crises in the model are quantitatively consistent with U.S. historical time series.

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Document Object Identifier (DOI): 10.3386/w19207

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