Course Overview
This course provides an overview of core aggregate labor market facts, from employment and unemployment rates, flows across labor force states and the dynamics of earnings, along with prevailing tools for modeling these outcomes in both the long run and over the business cycle. The course also examines the relation between unemployment and price inflation, and treats within that context recent issues concerning the conduct of monetary policy.
In addition to lecture notes with suggested readings, the course provides computer codes to perform covered data and numerical analysis using Stata and Matlab.
Course Structure: Four Core Parts
Part 1: Introduction — Characterizing the State of the Labor Market
Covers the main concepts, measures and facts commonly used to characterize the labor market in both the long run and over the business cycle. This includes:
- Prevailing measures of labor market slack
- Demand for labor indicators
- Earnings dynamics and measurement challenges
- Indicators of turnover
- Approaches to control for slow-moving demographic trends when comparing labor market statistics over long periods
The section concludes by introducing the stocks and flows approach to analyzing labor dynamics, a first step toward the search and matching approach to understanding unemployment in equilibrium.
Part 2: Search and Matching Models of Equilibrium Unemployment
The analysis focuses on the intuition for the main drivers of unemployment in steady state:
- Costs of creating jobs
- Determinants of equilibrium wages
- Steady-state welfare implications of labor market policies
- Extensions allowing for endogenous job search effort and job destruction
Part 3: Business Cycles in the Labor Market
Develops the framework to study the business cycle dynamics of unemployment and job vacancies. Topics include:
- Numerical methods for solving and simulating equilibrium models of unemployment
- Computing moments of interest and impulse response functions
- The challenge of generating internal propagation of exogenous shocks
- Prominent solutions in the literature
- Alternative assumptions for wage determination between workers and firms
Part 4: Labor Markets, Price Inflation, and Monetary Policy
The inflation-unemployment trade-off, central to monetary policy, is the focus of the final section:
- Dynamics of inflation and unemployment in a New Keynesian environment with equilibrium unemployment
- Issues arising with an effective lower bound on the central bank's policy rate
- Themes emerging since the onset of the COVID-19 pandemic
Special Topics
Credit and Goods Market Frictions
Credit Market Frictions: Following the lessons of the global financial crisis, this section introduces credit market frictions to the analysis, studying interactions with labor markets and focusing on implications for business cycles. Credit market frictions principally affect the cost of job creation.
Goods Market Frictions: The structure of the product market governs the payoffs to recruiting for the firm. This section focuses on the effects of goods market frictions for the demand for labor and unemployment in equilibrium.
Labor Force Participation
Analysis of labor force participation dynamics and their interaction with unemployment and labor market slack measures.
Course Materials
Resources Provided
- Lecture notes with suggested readings
- Stata code for data analysis
- Matlab code for numerical analysis and model simulation
Target Audience
Central bank economists, policy practitioners, and researchers interested in applying modern labor market analysis to monetary policy questions. The course is designed for those with graduate-level training in economics.