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Macroeconomic Effects of Sectoral Shocks in Germany, The U.K. and, The U.S. A VAR-GARCH-M Approach

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Author Info
Gianluigi Pelloni
Wolfgang Polasek

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Abstract

A VAR-GARCH-M model for aggregate employment and employment shares isdeveloped to explore the macroeconomic effects of sectoral shocks. Using U.S.,U.K. and German data, three main issues are investigated: the relevance ofshocks volatility; the amount of aggregate employment growth variationaccounted for by re-allocation shocks and the amount of aggregate innovation volatility explained by sectoral components. Bayesian methods are used for estimation model selection and innovation accounting – Bayes factors for model selection and MCMC for estimation. The results favor the VAR-GARCH-M model. A significant GARCH-M component indicates the presence of volatility clustering and the feedback of volatilities on aggregate employment and sectoral shares growth rates. The innovation analysis supports sectoral shocks as a triggering force for aggregate employment fluctuations. In all three countries, 45% to 55% ofaggregate employment variation is accounted for by sectoral innovations. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1022238914245
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Publisher Info
Article provided by Springer in its journal Computational Economics.

Volume (Year): 21 (2003)
Issue (Month): 1 (February)
Pages: 65-85
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Handle: RePEc:kap:compec:v:21:y:2003:i:1:p:65-85

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Related research
Keywords: intersectoral labour re-allocation; aggregate employment fluctuations; non-linearities; VAR-GARCH models;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Campbell, J.R. & Kuttner, K.N., 1996. "Macroeconomic Effects of Employment Reallocation," RCER Working Papers 415, University of Rochester - Center for Economic Research (RCER).
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  2. Kazamaki Ottersten, Eugenia, 1993. "Sectoral shocks and structural unemployment: An empirical analysis," European Economic Review, Elsevier, vol. 37(1), pages 115-133, January. [Downloadable!] (restricted)
  3. Robert Topel & Laurence Weiss, 1985. "Sectoral Uncertainty and Unemployment," UCLA Economics Working Papers 384, UCLA Department of Economics. [Downloadable!]
  4. Gianluigi Pelloni & Wolfgang Polasek, . "Intersectoral Labour Reallocation and Employment Volatility: A Bayesian Analysis using a VAR-GARCH-M model," Discussion Papers 99/4, Department of Economics, University of York. [Downloadable!]
  5. Bean, Charles R & Symons, James, 1989. "Ten Years of Mrs. T," CEPR Discussion Papers 316, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
    • Bean, C. & Symons, J., 1990. "Ten Years Of Mrs T.," Papers 370, London School of Economics - Centre for Labour Economics.
    • Charles Bean & James Symons, 1989. "Ten Years of Mrs. T," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 13-72 National Bureau of Economic Research, Inc. [Downloadable!]
  6. Mills, Terence C. & Pelloni, Gianluigi & Zervoyianni, Athina, 1996. "Cyclical unemployment and sectoral shifts: Further tests of the Lilien hypothesis for the UK," Economics Letters, Elsevier, vol. 52(1), pages 55-60, July. [Downloadable!] (restricted)
  7. Jimeno, Juan F., 1992. "The relative importance of aggregate and sector-specific shocks at explaining aggregate and sectoral fluctuations," Economics Letters, Elsevier, vol. 39(4), pages 381-385, August. [Downloadable!] (restricted)
  8. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February. [Downloadable!]
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  9. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August. [Downloadable!] (restricted)
  10. Samson, Lucie, 1990. "Sectoral Shifts and Aggregate Unemployment: Additional Empirical Evidence," Applied Economics, Taylor and Francis Journals, vol. 22(3), pages 331-46, March.
  11. Gross, Dominique M., 1993. "Equilibrium vacancy and unemployment: A flow approach to the beveridge curve," Journal of Macroeconomics, Elsevier, vol. 15(2), pages 301-327. [Downloadable!] (restricted)
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  12. Litterman, Robert B, 1986. "A Statistical Approach to Economic Forecasting," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 1-4, January.
  13. Caporale, Guglielmo Maria, 1997. "Sectoral Shocks and Business Cycles: A Disaggregated Analysis of Output Fluctuations in the UK," Applied Economics, Taylor and Francis Journals, vol. 29(11), pages 1477-82, November. [Downloadable!] (restricted)
  14. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-22, June. [Downloadable!] (restricted)
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  15. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September. [Downloadable!] (restricted)
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Cited by:
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  1. James D. Hamilton, 2008. "Macroeconomics and ARCH," NBER Working Papers 14151, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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