This paper points out an empirical failing of real business cycle models in which unemployment is endogenized through a … matching function. One can easily choose a calibration to make the cyclical fluctuation in unemployment as large in the model … as it is in the data, or to make the response of unemployment to a change in the unemployment benefit as small in the …

employment is presented. We provide some theoretical arguments which cast doubt on the standard thesis that unemployment … - especially in Germany - is mainly caused by labor market institutions and excessive wages. Rather there are several indications … that a persistent lack of demand is responsible for the major part of the German unemployment problem. …