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Mismatch Shocks and Unemployment During the Great Recession

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  • Francesco Furlanetto

    () (Norges Bank, Bankplassen)

  • Nicolas Groshenny

    () (School of Economics, University of Adelaide)

Abstract

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.

Suggested Citation

  • Francesco Furlanetto & Nicolas Groshenny, 2014. "Mismatch Shocks and Unemployment During the Great Recession," School of Economics Working Papers 2014-07, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2014-07
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    Cited by:

    1. Luca Sala & Ulf Söderström & Antonella Trigari, 2013. "Structural and Cyclical Forces in the Labor Market during the Great Recession: Cross-Country Evidence," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 345-404.
    2. Marco Guerrazzi & Paolo Gelain, 2015. "A demand-driven search model with self-fulfilling expectations: the new 'Farmerian' framework under scrutiny," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 81-104, January.
    3. Gehrke, Britta & Lechthaler, Wolfgang & Merkl, Christian, 2017. "The German labor market in the Great Recession: Shocks and institutions," IAB Discussion Paper 201714, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2016. "Unemployment and Business Cycles," Econometrica, Econometric Society, vol. 84, pages 1523-1569, July.
    5. Renato Faccini & Eran Yashiv, 2017. "The Importance of Hiring Frictions in Business Cycles," Discussion Papers 1736, Centre for Macroeconomics (CFM).
    6. Stéphane Auray & Aurélien Eyquem & Paul Gomme, 2016. "Debt Hangover in the Aftermath of the Great Recession," Post-Print halshs-01420905, HAL.
    7. Luca Benati & Thomas A. Lubik, 2013. "The time-varying Beveridge curve," Working Paper 13-12, Federal Reserve Bank of Richmond.
    8. Craighead, William, 2016. "Hysteresis in a New Keynesian Model," MPRA Paper 70777, University Library of Munich, Germany.
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    10. Herz, Benedikt & van Rens, Thijs, 2015. "Accounting for Mismatch Unemployment," IZA Discussion Papers 8884, Institute for the Study of Labor (IZA).
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    12. Yashiv, Eran, 2016. "Aggregate Hiring and the Value of Jobs Along the Business Cycle," CEPR Discussion Papers 11076, C.E.P.R. Discussion Papers.
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    14. Thomas A. Lubik, 2013. "The shifting and twisting Beveridge curve: an aggregate perspective," Working Paper 13-16, Federal Reserve Bank of Richmond.
    15. Curtis Simon, 2014. "Sectoral Change And Unemployment During The Great Recession, In Historical Perspective," Journal of Regional Science, Wiley Blackwell, vol. 54(5), pages 828-855, November.
    16. Furlanetto, Francesco & Groshenny, Nicolas, 2016. "Reallocation shocks, persistence and nominal rigidities," Economics Letters, Elsevier, vol. 141(C), pages 151-155.
    17. Rebecca Craigie & David Gillmore & Nicolas Groshenny, 2012. "Matching workers with jobs:how well is the New Zealand labour market doing?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 75, pages 3-12, December.
    18. Di Pace, Federico & Villa, Stefania, 2016. "Factor complementarity and labour market dynamics," European Economic Review, Elsevier, vol. 82(C), pages 70-112.
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    Keywords

    Search and matching frictions; Unemployment; Natural rates.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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