Hostname: page-component-84b7d79bbc-4hvwz Total loading time: 0 Render date: 2024-07-30T12:10:13.488Z Has data issue: false hasContentIssue false
  • English
  • Français

LIMITED PARTICIPATION, LABOR MARKET SEARCH AND LIQUIDITY EFFECTS

Published online by Cambridge University Press:  14 January 2010

Yan Li
Yan Li*
Affiliation:
University of Wisconsin—Eau Claire
*
Address correspondence to: Yan Li, Department of Economics, University of Wisconsin—Eau Claire, 105 Garfield Ave., P.O. Box 4004, Eau Claire, WI 54702, USA; e-mail: liyan@uwec.edu.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper models the liquidity effects after a contractionary open market operation in a framework that highlights the frictions of limited participation in financial markets and search frictions in labor markets. It is shown that Lucas rigidities, with the aid of labor market rigidities, could generate more persistent liquidity effects even in a context of flexible prices. In addition, the simulation results show that this adapted liquidity and labor search model does a reasonable good job in explaining the observed labor market dynamics in response to shocks of a plausible magnitude, and deliver substantial movements along a downward-sloping Beveridge curve.

Keywords

Liquidity EffectLimited ParticipationLabor Search and MatchingBeveridge Curve
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 2 , April 2011 , pp. 201 - 222
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Andolfatto, D. (1996) Business cycles and labor market search. American Economic Review 86, 112–132.Google Scholar
Blanchard, O. and Diamond, P. (1989) The Beveridge curve. Brookings Papers on Economic Activity 1, 1–76.Google Scholar
Christiano, L.J. (1988) Why does inventory investment fluctuate so much? Journal of Monetary Economics 21, 247–280.CrossRefGoogle Scholar
Christiano, L.J., Eichenbaum, M., and Evans, Charles L. (1997) Sticky price and limited participation models of money: A comparison. European Economic Review 41, 1201–1249.CrossRefGoogle Scholar
Cochrane, J. H. (1998) What do the VARs mean? Measuring the output effects of monetary policy. Journal of Monetary Economics 41, 277–300.Google Scholar
Cooley, T. and Quadrini, V. (1999) A neoclassical model of the Phillips curve relation. Journal of Monetary Economics 44 (2), 165–193.Google Scholar
Den Haan, W.J., Ramey, G., and Watson, J. (2000) Job destruction and propagation of shocks. American Economic Review 90, 482–498.CrossRefGoogle Scholar
Diamond, P. (1982) Wage determination and efficiency in search equilibrium. Review of Economic Studies 49, 217–227.Google Scholar
Fuerst, T. (1992) Liquidity, loanable funds, and real activity. Journal of Monetary Economics 29 (1), 3–24.CrossRefGoogle Scholar
Hairault, Jean-Olivier (2002) Labor market search and international business cycles. Review of Economics Dynamics 5, 535–558.Google Scholar
Hosios, A. (1990) On the efficiency of matching and related models of search unemployment. Review of Economic Studies 57, 279–298.Google Scholar
Keen, B. (2004) In search of the liquidity effect in a modern monetary model. Journal of Monetary Economics 51, 1467–1494.Google Scholar
Kydland, F. (1989) The Role of Money in a Business Cycle Model. Discussion Paper/Institute for Empirical Macroeconomics 23, Federal Reserve Bank of Minneapolis.Google Scholar
Lucas, R.E. Jr., (1990) Liquidity and interest rates. Journal of Economic Theory 50, 237–264.CrossRefGoogle Scholar
Merz, Monika (1995) Search in the labor market and the real business cycle. Journal of Monetary Economics 36, 269–300.Google Scholar
Shimer, Robert (2004) Search Intensity. Working paper, University of Chicago.Google Scholar
Shimer, Robert (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95, 25–49.Google Scholar
Uhlig, Harald (1995) A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily. CentER, University of Tilburg, and CEPR.Google Scholar
Uribe, Martin and Schmitt-Grohe, Stephanie (2007) Optimal simple and implementable monetary and fiscal rules. Journal of Monetary Economics 54, 1702–1725.Google Scholar
Walsh, Carl E. (2005) Labor market search, sticky prices, and interest rate policies. Review of Economic Dynamics 8, 829–849.CrossRefGoogle Scholar
Wang, Weimin and Shi, Shouyong (2006) The variability of velocity of money in a search model. Journal of Monetary Economics 53, 537–571.Google Scholar
Williamson, S. (2005) Limited participation and the neutrality of money. Federal Reserve Bank of Richmond Economic Quarterly 91, 1–20.Google Scholar