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Involuntary unemployment and the business cycle
2021
Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as
doi:10.17169/refubium-29160
fatcat:43sftirrtvda7lfhwl4ft43d44