Traditionally, models of economic decision-making assume that individuals are rational and emotionless. This chapter argues that the neglect of emotion in economic models explains their inability to predict important aspects of the labor market. We focus on one example: the scarcity of nominal...

This chapter argues that the neglect of emotion in economic models explains their inability to predict important aspects of the labor market. We focus on one example: firms frequently cut real wages, increasing nominal wages by less than the inflation rate, but they very seldom cut nominal...

This paper provides a new explanation of why inflation is sluggish in response to aggregate demand shocks and why aggregate output changes as result of such shocks. We argue that these phenomena are related to lags between inputs and outputs in the production process, "production lags" for...

Bei Vorliegen nach unten starrer Nominallöhne erschwert niedrige Inflation Reallohnanpassungen und führt so möglicherweise zu erhöhter gleichgewichtiger Arbeitslosigkeit. Dieser Aufsatz analysiert die wachsende Evidenz zu nach unten starren Nominallöhnen. Es werden nicht nur die...

The paper explores the consequences of macroeconomic policy for labor market outcomes in the presence of frictions. It shows how policy may be useful in overriding frictions, as well as how it might generate adverse outcomes. The analysis looks at the main tools of macroeconomic policy and...

This paper studies the cyclical dynamics of Mortensen and Pissarides' (1994) model of job creation and destruction when workers' effort is not perfectly observable, as in Shapiro and Stiglitz (1984). An occasionally-binding no-shirking constraint truncates the real wage distribution from below,...

This paper shows that the German labor market is more volatile than the US labor market. Specifically, the volatility of the cyclical component of several labor market variables (e.g., the job-finding rate, labor market tightness, and job vacancies) divided by the volatility of labor...

In this paper we incorporate a labor market with matching frictions and wage rigidities into the New Keynesian business cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions affect the transmission process of monetary policy. The...