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Financial factors and labor market fluctuations

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  • Zhang, Yahong

Abstract

The recent financial crisis has been associated with a significant rise in the unemployment rate in the U.S. To understand the impact of financial frictions and shocks on unemployment fluctuations, I develop a monetary DSGE model with explicit financial and labor market frictions. The model is estimated using U.S. data over the period of 1984Q1 to 2016Q4. I find that the model accounts well for the cyclical behavior of unemployment and vacancies observed in the data. The historical decomposition results show that financial wealth shocks contribute significantly to the rise in the unemployment rate following the recent financial crisis. Overall, I find that financial wealth shocks contribute more than 30 per cent of the fluctuations in unemployment and vacancies in the U.S. during the sample period.

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  • Zhang, Yahong, 2018. "Financial factors and labor market fluctuations," Economic Modelling, Elsevier, vol. 74(C), pages 24-44.
    • Handle: RePEc:eee:ecmode:v:74:y:2018:i:c:p:24-44
    DOI: 10.1016/j.econmod.2018.05.002
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    Cited by:

    1. Ian Christensen & Paul Corrigan & Caterina Mendicino & Shin‐Ichi Nishiyama, 2016. "Consumption, housing collateral and the Canadian business cycle," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 207-236, February.
    2. Zhang, Yahong, 2018. "Unemployment fluctuations in a small open-economy model with segmented labour markets: The case of Canada," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 6-20.
    3. Yahong Zhang, 2011. "Financial Frictions, Financial Shocks and Labour Market Fluctuations in Canada," Discussion Papers 11-10, Bank of Canada.

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    More about this item

    Keywords

    Financial frictions; Financial shocks; Unemployment; Search and matching models;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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