Search frictions and the business cycle in a small open economy DSGE model

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dc.contributor.authorGuerra-Salas, Juan
dc.contributor.authorKirchner, Markus
dc.contributor.authorTranamil-Vidal, Rodrigo
dc.date2021
dc.date.accessioned2021-04-30T17:07:20Z
dc.date.available2021-04-30T17:07:20Z
dc.description.abstractA labor market specification featuring search frictions and unemployment within an otherwise standard New Keynesian small open economy model significantly improves its ability to explain and predict both labor market data and other macroeconomic variables. We estimate the model with Chilean data and find that variations along the extensive margin of labor supply (i.e., employment) play a crucial role in the propagation of shocks, whereas the intensive margin (i.e., hours) is not important. Furthermore, foreign shocks are the key drivers of the business cycle, which is consistent with the empirical literature on open emerging economies. We conclude that a medium-scale DSGE model with this richer labor market specification is superior to one featuring the standard assumption of a labor market that always clears at a sticky nominal wage (a la Calvo) through variations along the intensive margin. (C) 2020 Elsevier Inc. All rights reserved.
dc.identifier.citationREVIEW OF ECONOMIC DYNAMICS,Vol.39,258-279,2021
dc.identifier.doi10.1016/j.red.2020.07.005
dc.identifier.urihttp://repositoriodigital.uct.cl/handle/10925/4108
dc.language.isoen
dc.publisherACADEMIC PRESS INC ELSEVIER SCIENCE
dc.sourceREVIEW OF ECONOMIC DYNAMICS
dc.subject.englishLabor market
dc.subject.englishSearch and matching
dc.subject.englishDSGE models
dc.subject.englishBusiness cycles
dc.subject.englishSmall open economies
dc.titleSearch frictions and the business cycle in a small open economy DSGE model
dc.typeArticle
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