Even though labor income represents about two thirds of disposal income to household, its role has largely been neglected by asset pricing models. In this paper, we solve a general equilibrium model which can both rationalize important feature of labor markets as well as financial markets. To...

Business Cycle Accounting (BCA) is a helpful litmus test for quantitive macroeconomic models. Indeed, deviations from the data and a neo-classical growth model can be summarized as distortion of the efficiency of production or to optimality conditions such as leisure-consumption choices and...

This paper investigates the implications of agency problems on credit markets when vacancy costs require some external financing for the propagation properties of an otherwise standard labor search model. The countercyclical premium on external finance greatly increases the elasticity of...

Investigating mechanisms of propagation has been central to the business cycle research agenda since its inception. Recent search models of the labor market fail in generating both the size and the persistence of their of central variables to productivity shocks, as does the RBC model in the...

Frictions in the labor market are important for understanding the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces realistic equity premium and...

Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum...

Building a model with three imperfect markets – goods, labor and credit – representing a product's life-cycle, we find that goods market frictions drastically change the qualitative and quantitative dynamics of labor market variables. The calibrated model leads to a significant reduction in...

A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the large unemployment dynamics in the Great Depression. The congestion externality induced by matching frictions causes the unemployment rate to increase...

We develop and calibrate a two-sector, search-matching model of the labor market augmented to incorporate a housing market and a frictional goods market. The labor market is divided into a construction sector and a non-housing sector, and there is perfect mobility of unemployed workers across...