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

  • Juan Pablo Medina
  • Alberto Naudon

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.

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File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2012/apr/recv15n1abr2012pp32-75.pdf
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Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 15 (2012)
Issue (Month): 1 (April)
Pages: 32-75

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Handle: RePEc:chb:bcchec:v:15:y:2012:i:1:p:32-75
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  1. Macarena García & Alberto Naudon, 2012. "Dinámica Laboral en Chile," Working Papers Central Bank of Chile 659, Central Bank of Chile.
  2. Thomas F. Cooley & Gary D. Hansen & Edward C. Prescott, 1994. "Equilibrium business cycles with idle resources and variable capacity utilization," Working Papers 94-22, Federal Reserve Bank of Philadelphia.
  3. Nan Li & Ceyhun Bora Durdu & Emine Boz, 2010. "Labor Market Search in Emerging Economies," 2010 Meeting Papers 255, Society for Economic Dynamics.
  4. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  5. Rudolfs Bems, 2008. "Aggregate Investment Expenditureson Tradable and Nontradable Goods," IMF Working Papers 08/45, International Monetary Fund.
  6. Yu Sheng & Xingpeng Xu, 2007. "Terms of Trade Shocks and Endogenous Search Unemployment: A Two-sector Model with Non-Traded goods," DEGIT Conference Papers c012_025, DEGIT, Dynamics, Economic Growth, and International Trade.
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  8. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  9. Manuel Toledo & Jose I. Silva, 2005. "Labor Turnover Costs and the Cyclical Behavior of Vacancies and Unemployment," 2005 Meeting Papers 775, Society for Economic Dynamics.
  10. Pierre-Olivier Gourinchas, 1999. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 153-222 National Bureau of Economic Research, Inc.
  11. Ingrid Jones & Alberto Naudon, 2009. "Dinámica Laboral y Evolución del Desempleo en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(3), pages 79-87, December.
  12. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  13. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
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  15. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  16. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  17. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  18. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
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