Integrating Labor Market Frictions in DSGE and TANK Models
Labor Market Frictions, Search and Matching, DiamondMortensen-Pissarides Models, DSGE Models, TANK Models.
Labor market frictions arise due to the time and costs associated with job searching and worker recruitment, introducing inefficiencies in the matching process between firms and workers. Integrating these frictions into DSGE (Dynamic Stochastic General Equilibrium) and TANK (Two Agent New Keynesian) models using the Diamond-Mortensen-Pissarides search and matching framework is essential for capturing more realistic market dynamics, which is particularly important for countries like Brazil. By endogenizing job finding and separation rates, enhanced models can provide more accurate insights for economic policy formulation, especially in response to economic shocks, ensuring that theoretical modeling aligns with real labor market observations.