An estimated new-Keynesian model with unemployment as excess supply of labor

Open Access

Abstract

As one alternative to search frictions, wage stickiness is introduced in a New-Keynesian model to generate endogenous unemployment fluctuations due to mismatches between labor supply and labor demand. The effects on an estimated New-Keynesian model for the U.S. economy are: i) the Calvo-type probability on wage stickiness rises, ii) the labor supply elasticity falls, iii) the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data, and iv) wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations. ; The authors would like to acknowledge financial support from the Spanish government (research projects ECO2008-02641, ECO2009-11151 and SEJ2007-66592-C03-01/ECON from Ministerio de Ciencia e Innovación, respectively). The first author also thanks Fundación Ramón Areces (VII Concurso Investigación en Economía) for financial support.