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Supply shocks, demand shocks, and labor market fluctuations

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  • Helge Braun
  • Reinout De Bock
  • Riccardo DiCecio

Abstract

The authors use structural vector autoregressions to analyze the responses of worker flows, job flows, vacancies, and hours to demand and supply shocks. They identify these shocks by restricting the short-run responses of output and the price level. On the demand side, they disentangle a monetary and nonmonetary shock by restricting the response of the interest rate. The responses of labor market variables are similar across shocks: Expansionary shocks increase job creation, the job-finding rate, vacancies, and hours; and they decrease job destruction and the separation rate. Supply shocks have more persistent effects than demand shocks. Demand and supply shocks are equally important in driving business cycle fluctuations of labor market variables. The authors' findings for demand shocks are robust to alternative identification schemes involving the response of labor productivity at different horizons. Supply shocks identified by restricting productivity generate a higher fraction of impulse responses inconsistent with standard search and matching models.

Suggested Citation

  • Helge Braun & Reinout De Bock & Riccardo DiCecio, 2009. "Supply shocks, demand shocks, and labor market fluctuations," Review, Federal Reserve Bank of St. Louis, issue May, pages 155-178.
  • Handle: RePEc:fip:fedlrv:y:2009:i:may:p:155-178:n:v.91no.3
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    Cited by:

    1. Hertweck Matthias Sebastian, 2013. "Strategic wage bargaining, labor market volatility, and persistence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-27, October.
    2. Roger M. Gomis & Sameer Khatiwada, 2017. "Firm dynamics and business cycle: What doesn't kill you makes you stronger?," IHEID Working Papers 03-2017, Economics Section, The Graduate Institute of International Studies.
    3. Fabio Canova & David Lopez-Salido & Claudio Michelacci, 2009. "The ins and outs of unemployment: An analysis conditional on technology shocks," Economics Working Papers 1213, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2012.
    4. Javier Ordóñez & Hector Sala & José I. Silva, 2011. "Oil Price Shocks and Labor Market Fluctuations," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 89-118.
    5. Nordmeier, Daniela & Weber, Enzo, 2013. "Patterns of unemployment dynamics in Germany," IAB Discussion Paper 201302, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Elena Vakulenko, 2013. "Labour Market Analysis using Time Series Models: Russia 1999-2011," Quaderni del Dipartimento di Economia, Finanza e Statistica 120/2013, Università di Perugia, Dipartimento Economia.
    7. Meradj Mortezapouraghdam, 2016. "Three Essays on the Role of Frictions in the Economy," Sciences Po publications info:hdl:2441/293qice3lj8, Sciences Po.
    8. Nordmeier, Daniela & Weber, Enzo, 2013. "Conditional Patterns of Unemployment Dynamics in Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79958, Verein für Socialpolitik / German Economic Association.
    9. repec:eee:labeco:v:50:y:2018:i:c:p:156-179 is not listed on IDEAS

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    Keywords

    Labor supply ; Labor market ; Business cycles;

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