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Mismatch shocks and unemployment during the Great Recession

Listed author(s):
  • Francesco Furlanetto

    ()

    (Norges Bank (Central Bank of Norway))

  • Nicolas Groshenny

    ()

    (University of Adelaide, School of Economics)

We investigate the macroeconomic consequences of .uctuations 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 almost irrelevant 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 1.25 percentage points and the natural rate by 2 percentage points. Moreover, it is the only shock that generates a positive conditional correlation between unemployment and vacancies.

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Paper provided by Norges Bank in its series Working Paper with number 2013/16.

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Length: 49 pages
Date of creation: 28 Jun 2013
Handle: RePEc:bno:worpap:2013_16
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