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Working Paper
Disentangling goods, labor, and credit market frictions in three European economies
We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In the three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for ...
Working Paper
When Hosios Meets Phillips: Connecting Efficiency and Stability to Demand Shocks
In an economy with frictional goods and labor markets there exist a price and a wage that implement the constrained efficient allocation. This price maximizes the marginal revenue of labor, balancing a price and a trading effect on firm revenue, and this wage trades off the benefits of job creation against the cost of turnover in the labor market. We show under bargaining over prices and wages that a double Hosios condition: (i) implements the constrained efficient allocation; (ii) also minimizes the elasticity of labor market tightness and job creation to a demand shock, and; (iii) that the ...
Working Paper
Shopping Time
The renewal of interest in macroeconomic theories of search frictions in the goods market requires a deeper understanding of the cyclical properties of the intensive margins in this market. We review the theoretical mechanisms that promote either procyclical or countercyclical movements in time spent searching for consumer goods and services, and then use the American Time Use Survey to measure shopping time through the Great Recession. Average time spent searching declined in the aggregate over the period 2008-2010 compared to 2005-2007, and the decline was largest for the unemployed who ...
Journal Article
Contrasting U.S. and European Job Markets during COVID-19
The onset of the COVID-19 pandemic and the unprecedented slowing of economic activity that followed caused severe disruptions to labor markets around the globe. In contrast to the United States, European Union countries funded short-time work programs to maintain jobs during a period of lockdown that was expected to be transitory. This succeeded in avoiding sharp increases in unemployment early in the recession. However, if the pandemic leads to a permanent reallocation of economic activity, short-time work programs may slow the process of workers moving from shrinking to growing sectors of ...