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Structural and Cyclical Forces in the Labor Market During the Great Recession: Cross-Country Evidence

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Author Info

  • Sala, Luca

    () (Department of Economics and IGIER)

  • Söderström, Ulf

    () (Monetary Policy Department, Central Bank of Sweden)

  • Trigari, Antonella

    () (Department of Economics and IGIER)

Abstract

We use an estimated monetary business cycle model with search and matching frictions in the labor market and nominal price and wage rigidities to study four countries (the U.S., the U.K., Sweden, and Germany) during the financial crisis and the Great Recession. We estimate the model over the period prior to the financial crisis and use the model to interpret movements in GDP, unemployment, vacancies, and wages in the period from 2007 until 2011. We show that contractionary financial factors and reduced efficiency in labor market matching were largely responsible for the experience in the U.S. Financial factors were also important in the U.K., but less so in Sweden and Germany. Reduced matching efficiency was considerably less important in the U.K. and Sweden than in the U.S., but matching efficiency improved in Germany, helping to keep unemployment low. A counterfactual experiment suggests that unemployment in Germany would have been substantially higher if the German labor market had been more similar to that in the U.S.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 264.

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Length: 70 pages
Date of creation: 01 Oct 2012
Date of revision:
Handle: RePEc:hhs:rbnkwp:0264

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Web page: http://www.riksbank.com/
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Keywords: Business cycles; financial crisis; labor market matching; Beveridge curve;

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  1. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2008. "Investment shocks and business cycles," Working Paper Series WP-08-12, Federal Reserve Bank of Chicago.
  2. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2011. "Is there a trade-off between inflation and output stabilization?," NBER Working Papers 17071, National Bureau of Economic Research, Inc.
  3. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "Introducing financial frictions and unemployment into a small open economy model," CQER Working Paper 2010-04, Federal Reserve Bank of Atlanta.
  4. Krause, Michael U. & Uhlig, Harald, 2011. "Transitions in the German labor market: Structure and crisis," Discussion Paper Series 1: Economic Studies 2011,34, Deutsche Bundesbank, Research Centre.
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  7. Vincent Sterk, 2010. "Home Equity, Mobility, and Macroeconomic Fluctuations," DNB Working Papers 265, Netherlands Central Bank, Research Department.
  8. Barnichon, Regis, 2010. "Building a composite Help-Wanted Index," Economics Letters, Elsevier, vol. 109(3), pages 175-178, December.
  9. Francesco Furlanett & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Reserve Bank of New Zealand Discussion Paper Series DP2012/06, Reserve Bank of New Zealand.
  10. Yashiv, E., 1999. "The Determinants of Equilibrium Unemployment," Papers 36-99, Tel Aviv.
  11. René Fahr & Uwe Sunde, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," German Economic Review, Verein für Socialpolitik, vol. 10, pages 284-316, 08.
  12. Michael Elsby & Bart Hobijn & Aysegül Sahin, 2009. "Unemployment dynamics in the OECD," Working Paper Series 2009-04, Federal Reserve Bank of San Francisco.
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