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Jobless recoveries: The interaction between financial and search frictions

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  • Wesselbaum, Dennis

Abstract

This paper establishes a link between labor market frictions and financial market frictions. We argue that this link had large effects on labor market outcomes and helps to explain the jobless recovery. We build a stylized DSGE model that features this channel. We use Bayesian methods to estimate the model on U.S. data. We show that the model with this channel generates a strong internal propagation mechanism, replicates stylized labor market effects of the Great Recession, and, most importantly, creates a jobless recovery. Further, our results show that recessions generated by financial shocks have the largest effect on the efficiency of the labor market compared to demand-side and other supply-side recessions.

Suggested Citation

  • Wesselbaum, Dennis, 2019. "Jobless recoveries: The interaction between financial and search frictions," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
  • Handle: RePEc:eee:jmacro:v:61:y:2019:i:c:15
    DOI: 10.1016/j.jmacro.2019.103126
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    More about this item

    Keywords

    DSGE; Jobless recovery; Labor market; Financial frictions;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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