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Business cycles and the labour market can theory fit the facts?

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  • Stephen Millard
  • Andrew Scott
  • Marianne Sensier

Abstract

The performance of six alternative models in accounting for UK labour market behaviour over the business cycle is examined. Models are assessed in terms of their ability to mimic actual cycle correlations and volatility, their success in replicating persistence, and their success in modelling asymmetries between expansions and downturns. Most are found to be successful in accounting for co-movements of key variables and in explaining asymmetries. But the models underpredict the volatility of employment and unemployment, produce too high a correlation between wages and employment, and do not capture the slow adjustment exhibited in the data.

Suggested Citation

  • Stephen Millard & Andrew Scott & Marianne Sensier, 1999. "Business cycles and the labour market can theory fit the facts?," Bank of England working papers 93, Bank of England.
  • Handle: RePEc:boe:boeewp:93
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1999/wp93.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hielke Buddelmeyer & Gilles Mourre & Melanie Ward, 2004. "The determinants of part-time work in EU countries: empirical investigations with macro-panel data - Hielke Buddelmeyer, Gilles Mourre and Melanie Ward," European Economy - Economic Papers 2008 - 2015 213, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Gerke, Rafael & Rubart, Jens, 2003. "Search Unemployment in a Dynamic New Keynesian Model of the Business Cycle," Darmstadt Discussion Papers in Economics 119, Darmstadt University of Technology, Department of Law and Economics.
    3. Buddelmeyer, Hielke & Mourre, Gilles & Ward-Warmedinger, Melanie E., 2004. "The Determinants of Part-Time Work in EU Countries: Empirical Investigations with Macro-Panel Data," IZA Discussion Papers 1361, Institute for the Study of Labor (IZA).
    4. Bruce C. Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.).
    5. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September.
    6. Guillermo Felices & David Tinsley, 2004. "Intertemporal substitution and household production in labour supply," Bank of England working papers 234, Bank of England.
    7. Buddelmeyer, Hielke & Mourre, Gilles & Ward-Warmedinger, Melanie, 2008. "Why do Europeans work part-time? A cross-country panel analysis," Working Paper Series 872, European Central Bank.
    8. Shamik Dhar & Stephen P Millard, 2000. "A limited participation model of the monetary transmission mechanism in the United Kingdom," Bank of England working papers 117, Bank of England.

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