In this paper, we analyze the dynamic behavior of employment and hours worked per worker
in a stochastic general equilibrium model with a matching mechanism between vacancies
and unemployed workers. The model is estimated for the US using the Generalized Methods
of Moments (GMM) estimation technique. An increase in government spending raises hours
worked per worker, and crowds out private consumption due to a negative wealth effect. On
the path converging towards the steady state, private consumption is below its long run …