Mismatch shocks and unemployment during the Great Recession
AbstractWe investigate the macroeconomic consequences of .uctuations in the effectiveness of the labor-market matching process with a focus on the Great Recession. We conduct our analysis in the context of an estimated medium-scale DSGE model with sticky prices and equilibrium search unemployment that features a shock to the matching efficiency (or mismatch shock). We find that this shock is almost irrelevant for unemployment fluctuations in normal times. However, it plays a somewhat larger role during the Great Recession when it contributes to raise the actual unemployment rate by 1.25 percentage points and the natural rate by 2 percentage points. Moreover, it is the only shock that generates a positive conditional correlation between unemployment and vacancies.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2013/16.
Length: 49 pages
Date of creation: 28 Jun 2013
Date of revision:
Search and marketing frictions; Unemployment; Natural rates;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
- NEP-DGE-2013-07-05 (Dynamic General Equilibrium)
- NEP-MAC-2013-07-05 (Macroeconomics)
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