Unemployment Crises
Working Paper 19207
DOI 10.3386/w19207
Issue Date
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.
Published Versions
Nicolas Petrosky-Nadeau & Lu Zhang, 2020. "Unemployment Crises," Journal of Monetary Economics, .