Reduced form wage equations in the credible bargaining model, joint with Vincent Boitier. (2016), Labour Economics, forthcoming.
Asymmetric unemployment fluctuations and monetary policy trade-offs and appendix, submitted
I show that a trade-off between average unemployment and inflation volatility arises in a New Keynesian model with search and matching frictions in the labor market. In this environment, unemployment rises more and faster in a recession than it decreases in an expansion. A strong focus on inflation stabilization in response to technology shocks comes at the cost of larger labor market volatility. Because unemployment fluctuations are asymmetric, it also results in higher average unemployment. The optimal policy responds strongly to both inflation and employment and stabilizes labor market fluctuations. Adopting this policy rather than a policy of price stability yields sizeable welfare gains. These gains are mostly accounted for by the increase in average employment relative to the price stability case.
Labor supply factors and economic fluctuations, with Claudia Foroni and Francesco Furlanetto (Norges Bank), Under revision
We propose a new VAR identification scheme that enables us to disentangle labor supply shocks from wage bargaining shocks. Identifi.cation is achieved by imposing robust sign restrictions that are derived from a New Keynesian model with endogenous labor force participation. According to our analysis on US data over the period 1985-2014, labor supply shocks and wage bargaining shocks are important drivers of output and unemployment both in the short run and in the long run. These results suggest that identification strategies used in estimated New Keynesian models to disentangle labor market shocks may be misguided. We also analyze the behavior of the labor force participation rate through the lenses of our model. We find that labor supply shocks are the main drivers of the participation rate and account for about half of its decline in the aftermath of the Great Recession.
Work in progress