Why is Unemployment so Countercyclical?

Lawrence J. Christiano; Martin S. Eichenbaum; Mathias Trabandt

doi:10.3386/w26723

Why is Unemployment so Countercyclical?

Lawrence J. Christiano, Martin S. Eichenbaum & Mathias Trabandt

Working Paper 26723

DOI 10.3386/w26723

Issue Date January 2020

We argue that wage inertia plays a pivotal role in allowing empirically plausible variants of the standard search and matching model to account for the large countercyclical response of unemployment to shocks.

We are grateful to Stefan Gebauer, Martin Harding and Sandra Pasch for helpful comments, and to Hannah Seidl for her assistance. We also thank Lars Ljungqvist and Tom Sargent for useful comments on an earlier draft of this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Lawrence J. Christiano
Non-Northwestern compensated activities: 2010 through 2018.

Short lecture courses at: Bank of Korea, International Monetary Fund, Kiel Institute for World Economics, Gerzensee Study Center, Central Bank of Peru, Central Bank of Portugal, Central Bank of Colombia, Central Bank of Hungary, Swiss National Bank, Central Bank of the Czech Republic, Renmin University, China, Shanghai Advanced Institute of Finance, Shanghai, Central Bank of Armenia, Southwest University of Finance and Economics in Chengdu, China.

Consultant, Central Bank of Brazil, Swiss National Bank.

Federal Reserve Bank of Atlanta, advisor.

Federal Reserve Bank of Chicago, advisor.

Federal Reserve Bank of Minneapolis, advisor.

Consultant, Global Markets Institute at Goldman Sachs.
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Lawrence J. Christiano, Martin S. Eichenbaum, and Mathias Trabandt, "Why is Unemployment so Countercyclical?," NBER Working Paper 26723 (2020), https://doi.org/10.3386/w26723.

Why is Unemployment so Countercyclical?

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