Staff Memo: A DSGE Model of Labour Hoarding

Staff memo Many economic models have long sought to capture the fact that labour productivity usually rises during economic booms and falls during recessions. This Staff Memo shows that if two features are included in a DSGE model – variable labour utilisation and employment adjustment costs – the model does a better job of explaining this relationship. It also leads to a more realistic description of the relationship between unemployment and output when monetary policy changes.