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Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market

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  • Toledo Manuel

    ()
    (Universidad Carlos III de Madrid)

  • Silva José I

    ()
    (Universitat de Girona)

Abstract

This paper studies the role of investment-specific shocks as an amplification mechanism of labor market fluctuations. We first show evidence suggesting that after a fall in the relative price of new equipment, not only do investment and output increase but firms also post more vacancies, hours worked increase and unemployment falls. Moreover, we study the quantitative impact of investment-specific shocks on the labor market by incorporating them in a Real Business Cycle model with search and matching frictions. We find that these shocks have a significant amplification effect on labor market fluctuations, increasing the volatility of unemployment, vacancies and total hours more than twofold.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 10 (2010)
Issue (Month): 1 (April)
Pages: 1-39

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Handle: RePEc:bpj:bejmac:v:10:y:2010:i:1:n:9

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  1. Reinout De Bock, 2007. "Investment-Specific Technology Shocks and Labor Market Frictions," Working Paper Research 108, National Bank of Belgium.
  2. Ebell, Monique & Haefke, Christian, 2006. "Product Market Deregulation and the U.S. Employment Miracle," IZA Discussion Papers 1946, Institute for the Study of Labor (IZA).
  3. Zanetti, Francesco, 2011. "Labor market institutions and aggregate fluctuations in a search and matching model," European Economic Review, Elsevier, vol. 55(5), pages 644-658, June.
  4. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  5. Renato Faccini & Salvador Ortigueira, 2008. "Labor-Market Volatility in the Search-and-Matching Model: The Role of Investment-Specific Technology Shocks," Economics Working Papers ECO2008/39, European University Institute.
  6. Morten O. Ravn & Saverio Simonelli, 2008. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 743-777, 03.
  7. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  8. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  9. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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Cited by:
  1. Renato Faccini & Salvador Ortigueira, 2008. "Labor-Market Volatility in the Search-and-Matching Model: The Role of Investment-Specific Technology Shocks," Economics Working Papers ECO2008/39, European University Institute.
  2. Javier Ordóñez & Hector Sala & José I. Silva, 2010. "Oil price shocks and labor market fluctuations," Working Papers wpdea1005, Department of Applied Economics at Universitat Autonoma of Barcelona.

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