Shocks and rigidities as determinants of CEE labor markets' performance. A panel SVECM approach
AbstractIn this paper the dynamic responses of labor markets to macroeconomic shocks in eight CEE countries are empirically analyzed in panel SVECM. Identification of shocks, interpreted as real wage, productivity, labor demand and supply shocks, is based on DSGE model with labor market explicitly modeled after Mortensen and Pissarides (1994). Fluctuations in foreign demand are controlled for and the model is estimated with panel procedure, which improves estimation's precision. We show that propagation of shocks on NMS labor markets fairly resembles that characterizing OECD countries. Productivity improving shocks temporarily increase unemployment. Positive labor demand shocks increase employment, depress unemployment, rise real average wages, and were found to be the main determinant of variability of employment and unemployment in the short-run. In the medium term, in Czech Republic, Latvia, Lithuania and Poland innovations in wages seem to be prevalent drivers of employment and unemployment. The retrospective simulations of the model show that Baltic states and Poland were significantly affected by the collapse of Russian exports in late 1990s, and in 2000 an adverse labor demand shock hit all NMS, except for Hungary and Slovenia. However, the flexibility of wages is found to be crucial factor behind the diverse labor market performance in the region. Slovenia and Estonia fared best when it comes to flexibility of wages on macro level, on the other hand in Czech Republic, Lithuania and Poland downward wage rigidities were especially binding after employment-contracting shocks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12429.
Date of creation: 01 Dec 2008
Date of revision:
Unemployment; Rigidities; Transition economies; Cointegration; Structural VECM; Panel econometrics; DSGE models;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-DGE-2009-01-03 (Dynamic General Equilibrium)
- NEP-LAB-2009-01-03 (Labour Economics)
- NEP-MAC-2009-01-03 (Macroeconomics)
- NEP-TRA-2009-01-03 (Transition Economics)
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.:
- Saikkonen, Pentti & Luukkonen, Ritva, 1997. "Testing cointegration in infinite order vector autoregressive processes," Journal of Econometrics, Elsevier, vol. 81(1), pages 93-126, November.
- Jacobson, Tor & Vredin, Anders & Warne, Anders, 1998.
"Are Real Wages and Unemployment Related?,"
London School of Economics and Political Science, vol. 65(257), pages 69-96, February.
- Jacobson, Tor & Vredin, Anders & Warne, Anders, 1994. "Are Real Wages and Unemployment Related?," Working Paper Series in Economics and Finance 8, Stockholm School of Economics.
- Jacobson, T. & Vredin, A. & Warne, A., 1993. "Are Real Wages and Unemployment Related?," Papers 558, Stockholm - International Economic Studies.
- Olivier Blanchard & Justin Wolfers, 1999.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
NBER Working Papers
7282, National Bureau of Economic Research, Inc.
- Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
- C Bean, 1992.
"European Unemployment: A Survey,"
CEP Discussion Papers
dp0071, Centre for Economic Performance, LSE.
- Andrea Bassanini & Romain Duval, 2006.
"Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions,"
OECD Economics Department Working Papers
486, OECD Publishing.
- Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
- Breitung, J. & Pesaran, M.H., 2005.
"Unit Roots and Cointegration in Panels,"
Cambridge Working Papers in Economics
0535, Faculty of Economics, University of Cambridge.
- Breitung, Jörg & Pesaran, Mohammad Hashem, 2005. "Unit roots and cointegration in panels," Discussion Paper Series 1: Economic Studies 2005,42, Deutsche Bundesbank, Research Centre.
- Jörg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," IEPR Working Papers 05.32, Institute of Economic Policy Research (IEPR).
- Joerg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," CESifo Working Paper Series 1565, CESifo Group Munich.
- Pesaran, M.H., 2003.
"A Simple Panel Unit Root Test in the Presence of Cross Section Dependence,"
Cambridge Working Papers in Economics
0346, Faculty of Economics, University of Cambridge.
- M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
- Olivier Blanchard, 2006.
"European unemployment: the evolution of facts and ideas,"
CEPR & CES & MSH, vol. 21(45), pages 5-59, 01.
- Olivier Blanchard, 2005. "European Unemployment: The Evolution of Facts and Ideas," NBER Working Papers 11750, National Bureau of Economic Research, Inc.
- David H. Papell & Christian J. Murray & Hala Ghiblawi, 2000. "The Structure of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 309-315, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.