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Flexible prices, labor market frictions, and the response of employment to technology shocks

Listed author(s):
  • Mandelman, Federico S.

    ()

    (Federal Reserve Bank of Atlanta)

  • Zanetti, Francesco

    ()

    (Oxford University)

Recent empirical evidence establishes that a positive technology shock leads to a decline in labor inputs. Can a flexible price model enriched with labor market frictions replicate this stylized fact? We develop and estimate a standard flexible price model using Bayesian methods that allows, but does not require, labor market frictions to generate a negative response of employment to a technology shock. We find that labor market frictions account for the fall in labor inputs.

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Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 2013-16.

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Length: 25 pages
Date of creation: 01 Dec 2013
Handle: RePEc:fip:fedawp:2013-16
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