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Mismatch Shocks and Unemployment During the Great Recession

Listed author(s):
  • Francesco Furlanetto

    ()

    (Norges Bank, Bankplassen)

  • Nicolas Groshenny

    ()

    (School of Economics, University of Adelaide)

We investigate the macroeconomic consequences of fluctuations in the effectiveness of the labor-market matching process with a focus on the Great Recession. We conduct our analysis in the context of an estimated medium-scale DSGE model with sticky prices and equilibrium search unemployment that features a shock to the matching efficiency (or mismatch shock). We find that this shock is not important for unemployment fluctuations in normal times. However, it plays a somewhat larger role during the Great Recession when it contributes to raise the actual unemployment rate by around 1.3 percentage points and the natural rate by around 2 percentage points. The mismatch shock is the dominant driver of the natural rate of unemployment and explains part of the recent shift of the Beveridge curve.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2014-07.pdf
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Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2014-07.

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Length: 102 pages.
Date of creation: Aug 2014
Handle: RePEc:adl:wpaper:2014-07
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Adelaide SA 5005

Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/

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