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Job Destruction and Propagation of Shocks

  • Garey Ramey
  • Wouter J. den Haan
  • Joel Watson

This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence. Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data. incorporating costly capital adjustment leads to significantly greater propagation.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 3 (June)
Pages: 482-498

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:3:p:482-498
Note: DOI: 10.1257/aer.90.3.482
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