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Aggregate shocks and labor market fluctuations

  • Helge Braun
  • Reinout De Bock
  • Riccardo DiCecio

This paper evaluates the dynamic response of worker flows, job flows, and vacancies to aggregate shocks in a structural vector autoregression. We identify demand, monetary, and technology shocks by imposing sign restrictions on the responses of output, inflation, the interest rate, and the relative price of investment. No restrictions are placed on the responses of job and worker flows variables. We find that both investment-specific and neutral technology shocks generate responses to job and worker flows variables that are qualitatively similar to those induced by monetary and demand shocks. However, technology shocks have more persistent effects. The job finding rate largely drives the response of unemployment, though the separation rate explains up to one third. For job flows, the destruction margin is more important than the creation margin in driving employment growth. Measuring reallocation from job flows, we find that monetary and demand shocks do not have significant effects on cumulative job reallocation, whereas expansionary technology shocks have mildly negative effects. We also estimate shock-specific matching functions. Allowing for a break in 1984:Q1 shows considerable subsample differences in matching elasticities and relative shock-specific efficiency.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-004.

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Date of creation: 2006
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Handle: RePEc:fip:fedlwp:2006-004
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  1. Jonas D. M. Fisher, 2002. "Technology shocks matter," Working Paper Series WP-02-14, Federal Reserve Bank of Chicago.
  2. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 185-207.
  3. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  4. Shigeru Fujita, 2005. "Vacancy Persistence," Computing in Economics and Finance 2005 191, Society for Computational Economics.
  5. Ricardo Caballero & Muhamad Hammour, 1999. "The Cost of Recessions Revisited: A Reverse-Liquidationist View," Working papers 99-22, Massachusetts Institute of Technology (MIT), Department of Economics.
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  15. Steven J. Davis & John Haltiwanger, 1996. "On the Driving Forces Behind Cyclical Movement, in Employment and Job Reallocation," NBER Working Papers 5775, National Bureau of Economic Research, Inc.
  16. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
  17. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  18. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 493-508.
  19. Claudio Michelacci & David Lopez-Salido, 2007. "Technology Shocks and Job Flows," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1195-1227.
  20. R. Jason Faberman, 2004. "Gross Job Flows over the Past Two Business Cycles: Not all 'Recoveries' are Created Equal," Working Papers 372, U.S. Bureau of Labor Statistics.
  21. Hoyt Bleakley & Ann E. Ferris & Jeffrey C. Fuhrer, 1999. "New data on worker flows during business cycles," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 49-76.
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