UC Santa Cruz

The focus of this dissertation is in the application of three variations of the canonical Diamond-Mortensen-Pissarides (DMP) search and matching model of the labor market to answer questions pertaining to the economics of labor and housing markets (Ch. 2), credit markets (Ch. 3), and to the dynamics of labor productivity (Ch. 4).

In chapter 2, I augment the (DMP) search and matching model of the labor market with a rental housing market characterized by search and matching frictions, integrating both markets into a single, coherent macroeconomic model. The resulting framework is then used to study how frictions in the housing market spill over into the labor market. Agents search and match with employers and once an employment match is established, turn to the rental market in order to secure housing. The chapter concludes with three numerical simulations of the augmented model, including shocks to labor productivity, the rate at which labor match separate, and the labor bargaining weight, demonstrate a substantial increase in the ability of the housing-augmented model to match recent (2000 - 2014) empirical labor market data over a model with labor frictions alone.

Chapter 3 studies a channel system for implementing monetary policy when bank lending is subject to frictions. These frictions affect the spread between the policy rate and the loan rate. We show how the width of the channel and the nature of random payment flows in the interbank market also affect the spread and therefore the transmission of monetary policy to credit markets. Simulation exercises are used to conduct a series of policy experiments.

The fourth chapter of this dissertation implements a variation of the DMP model in order to analyze the implied productivity of existing and new employment matches during the wake of both the early 2000s recession and the Great Recession. We find that surviving and new employment matches during the Great Recession exhibit a productivity level 2.16 times higher than those during the early 2000s recession. We show that the increased idiosyncratic productivity threshold in the newly-formed matches was largely the result of the increase in the labor financing costs facing firms originating from disruptions to credit markets during the Great Recession.