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Technology shocks, employment and labour market frictions

  • Mandelman, Federico S

    ()

    (Federal Reserve Bank of Atlanta)

  • Zanetti, Francesco

    ()

    (Bank of England)

Recent empirical evidence suggests that a positive technology shock leads to a decline in labour inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labour market frictions address this problem, without otherwise altering the functioning of the model? We develop and estimate a real business cycle model using Bayesian techniques that allows, but does not require, labour market frictions to generate a negative response of employment to a technology shock. The results of the estimation support the hypothesis that labour market frictions are the factor responsible for the negative response of employment.

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Paper provided by Bank of England in its series Bank of England working papers with number 390.

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Length: 29 pages
Date of creation: 03 Jun 2010
Date of revision:
Handle: RePEc:boe:boeewp:0390
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