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In the aftermath of the U.S. …nancial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across …rms. We develop a dynamic general equilibrium model where heterogenous …rms need cash in their production process. We analyze the dynamic impact of aggregate shocks and the cross-…rm impact of idiosyncratic shocks. We show that liquidity and productivity shocks tend to generate a negative comovement between the cash ratio and employment. In contrast, standard credit shocks produce a positive relationship. A calibrated version of the model yields a negative comovement that is close to the data.We would like to thank Ander Perez, Vincenzo Quadrini, Ansgar Rannenberg, Serhiy Stepanchuk, Jaume Ventura, and several seminar participants for their comments. Financial support from the ERC Advanced Grant #269573 is gratefully acknowledged.

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Bilateral bargaining between a multiple-worker firm and individual employees leads to overhiring. With a concave production function, the firm can reduce the marginal product by hiring an additional worker, thereby reducing the bargaining wage paid to all existing employees. We show that this externality is amplified when firms can adjust hours per worker as well as employment. Firms keep down workers' wage demands by reducing the number of hours per worker and the resulting labor disutility. Our finding is particularly relevant for European economies where hours adjustment plays an important role. R An earlier version of this paper was circulated under the title 'Employment, Hours and Optimal Monetary Policy'. We thank the associate editor, Antonella Trigari, and an anonymous referee for very useful comments and suggestions. We are grateful to

for helpful conversations and remarks. We have also bene…ted from comments by participants in the workshop "Wage Bargaining, Employment and Monetary and Economic Policies"hosted by the Banque de France and the DARES, Kiel Institute for the World Economy and the RIEF Conference 2008. The views expressed in this paper are the responsability of the authors and do not necessarily refect those of the Banque de France. The usual caveat applies.

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We investigate identi…cation issues in estimated Taylor rules. Embedding two alternative views about monetary policy, inertia versus serially correlated shocks, in a single equation, we show that using euro data, it is impossible to discriminate between these two competing representations.