Financial Frictions and Labor Market Fluctuations (Case Study Iran's Economy as a Small Open Economy)

The financial crisis of 2007 showed that the impact of financial markets on macroeconomic developments is deep. The labor market was affected by financial variables. This paper extends the New Keynesian model of a stochastic dynamic general equilibrium (DSGE) for the Iran economy in three context of an open economy، consider a financial frictions and frictions labor market، the impact of financial shocks (financial wealth shock، interest rates shock and investment-specific shock) with financial frictions on the labor market fluctuations are examined. The results indicate that financial frictions play an important role in influencing this shocks on the labor market fluctuations.