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Labor Market Dynamic in Chile:The Role of the Terms of Trade

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  • Juan Pablo Medina
  • Alberto Naudon

Abstract

This paper explores some of the channels through which the terms of trade influence the labor market in an emerging economy like Chile. To do so, we analyze the cyclical properties of labor variables using an autoregressive vector to estimate the responses of the labor market to a terms of trade shock in Chile, for which two sources are defined: the mining industry and other sectors. We also develop a multiple sector model with search frictions that generates fluctuations in the rate of unemployment. Using a version of the model calibrated for Chile, we analyze its capacity to replicate the observed responses of the labor market to terms of trade fluctuations. We find that the model can qualitatively predict the effects of innovations in the terms of trade on the labor variables. However, from a quantitative standpoint, the base model is unable to replicate all the estimated responses of the labor market variables to the terms of trade. Alternative versions of the model are used to examine what elements are required to have quantitative predictions that are similar to the estimations.

Suggested Citation

  • Juan Pablo Medina & Alberto Naudon, 2012. "Labor Market Dynamic in Chile:The Role of the Terms of Trade," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(1), pages 32-75, April.
  • Handle: RePEc:chb:bcchec:v:15:y:2012:i:1:p:32-75
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    References listed on IDEAS

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    Cited by:

    1. David Coble & Sebastián Faúndez, 2016. "The labor wedge and business cycles in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(1), pages 38-56, April.
    2. Gonzalo Castex & Roberto Gillmore, 2014. "Análisis de Flujos en el Mercado laboral Chileno," Working Papers Central Bank of Chile 731, Central Bank of Chile.
    3. Bodenstein, Martin & Kamber, Güneş & Thoenissen, Christoph, 2018. "Commodity prices and labour market dynamics in small open economies," Journal of International Economics, Elsevier, vol. 115(C), pages 170-184.
    4. Claudia De la Huerta & Javier Garcia-Cicco, 2016. "Commodity Prices, Growth and Productivity: a Sectoral View," Working Papers Central Bank of Chile 777, Central Bank of Chile.
    5. Juan Guerra-Salas & Markus Kirchner & Rodrigo Tranamil, 2021. "Search Frictions and the Business Cycle in a Small Open Economy DSGE Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 258-279, January.
    6. Markus Kirchner & Rodrigo Tranamil, 2016. "Calvo Wages Vs. Search Frictions: a Horse Race in a DSGE Model of a Small Open Economy," Working Papers Central Bank of Chile 778, Central Bank of Chile.

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