Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/245984
Authors: 
Ravenna, Federico
Walsh, Carl E.
Year of Publication: 
2020
Series/Report no.: 
Danmarks Nationalbank Working Papers No. 163
Publisher: 
Danmarks Nationalbank, Copenhagen
Abstract: 
In a new Keynesian model with random search in the labor market, endogenous selection among heterogeneous workers amplifies fluctuations in unemployment and results in excess unemployment volatility relative to the efficient allocation. Recessions disproportionately affect lowproductivity workers, whose unemployment spells are inefficiently frequent and long. We consider a COVID recession resulting from a negative demand shock and a surge in exogenous separations. Highproductivity workers benefit if separations in a pandemic take the form of temporary layoffs, but this is not true for low-productivity workers. The unemployment consequences are especially severe when nominal interest rates are close to the effective lower bound.
Subjects: 
Economic activity and employment
Models
Economic policy
Inflation
wages and prices
Monetary policy
JEL: 
E24
E32
E52
Document Type: 
Working Paper

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