We develop a utility based model of fluctuations, with nominal rigidities, and unemployment. In doing so, we combine …-Mortensen-Pissarides model, with its focus on labor market frictions and unemployment. In developing this model, we proceed in two steps. We … effect on unemployment in the constrained efficient allocation. We then focus on the implications of alternative real wage …

. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is …