This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions...

According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse newjobs due to high unemployment benefits. In this paper we...

Abstract We develop a model of bilateral contracting in a dynamic market setting. Asset owners must be paired via a matching process in order to form productive relationships involving long-term investments and ongoing effort. Market frictions shape the owners' incentives to invest in the...

This paper develops a theoretical framework for analyzing contracting imperfections in long-term employment relationships. We focus chiefly on limited enforceability and limited worker liquidity. Inefficient severance of employment relationships, payment of efficiency wages, the relative...

We develop and quantitatively implement a dynamic general equilibrium model with labor" market matching and endogenous job destruction. The model produces a close match with data on" job creation and destruction. Cyclical fluctuations in the job destruction rate serve to magnify the" effects of...