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Anticipated growth and business cycles in matching models

Den Haan, Wouter J. and Kaltenbrunner, Georg (2009) Anticipated growth and business cycles in matching models. Journal of Monetary Economics, 56 (3). pp. 309-327. ISSN 0304-3932

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Abstract

In a business cycle model that incorporates a standard matching framework, employment increases in response to news shocks, even though the wealth effect associated with the increase in expected productivity reduces labor force participation. The reason is that the matching friction induces entrepreneurs to increase investment in new projects and vacancies early. If there is underinvestment in new projects in the competitive equilibrium, then the efficiency gains associated with an increase in employment make it possible that consumption, employment, output, as well as the investment in new and existing projects jointly increase long before the actual increase in productivity materializes. If there is no underinvestment, then investment in existing projects decreases, but total investment, consumption, employment, and output still jointly increase.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-moneta...
Additional Information: © 2009 Elsevier
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation)
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 14 Feb 2012 10:57
URL: http://eprints.lse.ac.uk/41887/

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