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Aggregate Employment Fluctuations and Agricultural Share

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  • Jose Maria Da Rocha
  • Diego Restuccia

Abstract

Differences in employment volatility and the correlation of employment with output across countries are often cited as examples of the limitation of standard real business cycle (RBC) theory to reproduce the observed labor market facts. These observations have lead researchers to argue for the necessity of Non-Walrasian features to reflect the labor institutions in European countries. In this paper, we show that the same labor market evidence is observed in regional economies with the same labor market institutions. We conjecture that differences in agricultural activity can generate the observed differences in labor market behavior. We show that a standard two-sector RBC model with agriculture and non-agriculture can account for the observed labor market facts. In particular, as the size of agricultural activity increases, aggregate employment volatility and the correlation between aggregate employment and output decrease. Moreover, contrary to the Non-Walrasian approach to business cycles, agricultural activity can account for the correlation between aggregate employment and output as reported by Danthine and Donaldson (1993) for Europe and the U.S.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number diegor-02-02.

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Length: 28 pages
Date of creation: 11 Oct 2002
Date of revision:
Handle: RePEc:tor:tecipa:diegor-02-02

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Keywords: Business Cycles; Agriculture; Two-sector Model.;

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References

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  1. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  2. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  3. Kollintzas, Tryphon & Vassilatos, Vanghelis, 1996. "A Stochastic Dynamic General Equilibrium Model for Greece," CEPR Discussion Papers 1518, C.E.P.R. Discussion Papers.
  4. Jose Maria Da Rocha & Diego Restuccia, 2002. "The Role of Agriculture in Aggregate Business Cycle Fluctuations," Working Papers diegor-02-04, University of Toronto, Department of Economics.
  5. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  6. Danthine, J.P. & Donaldson, J.B., 1991. "Methodological and Empirical Issues in Real Business Cycle Theory," Papers fb-_91-11, Columbia - Graduate School of Business.
  7. Correia, I. & Rabelo, S. & Naves, J.C., 1994. "Business Cycles in a Small Open Economy," RCER Working Papers 382, University of Rochester - Center for Economic Research (RCER).
  8. Luis A. Puch & Omar Licandro, 1997. "Are there any special features in the Spanish business cycle?," Investigaciones Economicas, Fundación SEPI, vol. 21(2), pages 361-394, May.
  9. Fiorito, Riccardo & Kollintzas, Tryphon, 1992. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective," CEPR Discussion Papers 681, C.E.P.R. Discussion Papers.
  10. McGrattan, Ellen R, 1990. "Solving the Stochastic Growth Model by Linear-Quadratic Approximation," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 41-44, January.
  11. Juan J. Dolado & Miguel Sebastián & Javier Vallés, 1993. "Ciclical patterns of the spanish economy," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 445-473, September.
  12. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
  13. repec:fth:baesse:9324 is not listed on IDEAS
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Cited by:
  1. Jose Maria Da Rocha & Diego Restuccia, 2002. "The Role of Agriculture in Aggregate Business Cycle Fluctuations," Working Papers diegor-02-04, University of Toronto, Department of Economics.

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