You don’t need DSGE models to understand business cycles, it’s basically just a game of musical chairs. Nominal wages are very sticky and NGDP is very volatile. So when NGDP falls there is less money to pay workers, and rather than taking nominal wage cuts you get lots of workers sitting on the floor—unemployment. Britmouse has a couple graphs that show this pattern for Britain. (Read his post for a full explanation.) He used NGDP at basic prices net of taxes, which is the funds available to pay workers. Notice that when NGDP plunged in 2008-09, the real wage defined as W/NGDP per capita soared, and so did unemployment. BTW, British hourly nominal wages have been rising at a 2.2% rate in recent years, so inflation is not a problem. If the CPI number shows high inflation, the problem is supply side, not excessively easy monetary policy. (Thanks to W. Peden and John Hall who also sent me wage data.)
UK Unemployment Rate. Source: ONS Series MGSX