Events

Economics Seminar

Authors:

• Juanyi (Jenny) Xu
  The Hong Kong University of Science & Technology

• David Cook
  The Hong Kong University of Science & Technology

This paper incorporates search frictions with endogenous job creation and destruction into a two country dynamic stochastic general equilibrium model to explain two macroeconomic facts. First, since the 1980's, European unemployment rates have risen substantially above USA levels. Second, European business cycle have lagged the USA business cycle during the period of the Great Moderation. In the model, more generous unemployment benefits and greater firing costs can endogenously generate higher unemployment. These same policies will also create labor market frictions which slow the response of the economy to business cycle conditions.