Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market
This paper studies the role of investment-specific shocks as an amplification mechanism of labor market fluctuations. We first show evidence suggesting that after a fall in the relative price of new equipment, not only do investment and output increase but firms also post more vacancies, hours worked increase and unemployment falls. Moreover, we study the quantitative impact of investment-specific shocks on the labor market by incorporating them in a Real Business Cycle model with search and matching frictions. We find that these shocks have a significant amplification effect on labor market fluctuations, increasing the volatility of unemployment, vacancies and total hours more than twofold.
Volume (Year): 10 (2010)
Issue (Month): 1 (April)
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- Ravn, Morten O & Simonelli, Saverio, 2007.
"Labour Market Dynamics and the Business Cycle: Structural Evidence for the United States,"
CEPR Discussion Papers
6409, C.E.P.R. Discussion Papers.
- Morten O. Ravn & Saverio Simonelli, 2008. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 743-777, 03.
- Morten O. Ravn & Saverio Simonelli, 2007. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," CSEF Working Papers 182, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
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