We estimate small open economy models with involuntary unemployment using Australian data from 1993 to 2007, focusing on hiring costs and real wage rigidity. We find a strong preference for models with hiring costs, which account for 0.97% of GDP. The data favour models with real over nominal...

The paper introduces methods that allow analysts to (i) decompose the estimates of unobserved quantities into observed data and (ii) impose subjective prior constraints on path estimates of unobserved shocks in structural economic models. For instance, decomposition of output gap to output,...