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Labor Market and Financial Shocks: A Time‐Varying Analysis

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  • FRANCESCO CORSELLO
  • VALERIO NISPI LANDI

Abstract

We estimate a time‐varying VAR model to analyze the effects of a financial shock on the U.S. labor market. We find that a tightening of financial conditions is highly detrimental to the labor market. We show that while negative financial shocks have been responsible for increases in unemployment, our model does not find significant contributions of financial shocks during periods of expansion. The source of this asymmetry is the time‐varying standard deviation of the identified shock, which is higher in times of financial distress; on the other hand, we find that the transmission mechanism does not significantly change over time.

Suggested Citation

  • Francesco Corsello & Valerio Nispi Landi, 2020. "Labor Market and Financial Shocks: A Time‐Varying Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 777-801, June.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:4:p:777-801
    DOI: 10.1111/jmcb.12638
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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