Shimer (2005a) claims that the Mortensen-Pissarides search model of unemployment lacks an ampiflication mechanism because it cannot generate the observed business cycle fluctuations in unemployment given labor productivity shocks of plausible magnitude. This paper argues that part of the problem...

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical wage equationsstarting from Phillips(1958) original workand may...

We develop a reformulated version of the Smets-Wouters (2007) framework that embeds the theory of unemployment proposed in Gal (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the...