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Aggregate shocks and labor market fluctuations

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  • Helge Braun
  • Reinout De Bock
  • Riccardo DiCecio

Abstract

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.

Suggested Citation

  • Helge Braun & Reinout De Bock & Riccardo DiCecio, 2006. "Aggregate shocks and labor market fluctuations," Working Papers 2006-004, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2006-004
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Morten O. Ravn & Saverio Simonelli, 2008. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 743-777, March.
    2. Christopher A. Pissarides, 2007. "Unemployment And Hours Of Work: The North Atlantic Divide Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 1-36, February.
    3. Ch. Pissarides., 2011. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 1.
    4. Helge Braun, 2006. "(Un)Employment Dynamics: The Case of Monetary Policy Shocks," 2006 Meeting Papers 87, Society for Economic Dynamics.
    5. Michael W. L. Elsby & Bart Hobijn & Ayşegül Şahin, 2013. "Unemployment Dynamics in the OECD," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 530-548, May.
    6. Helge Braun & Reinout De Bock & Riccardo DiCecio, 2009. "Supply shocks, demand shocks, and labor market fluctuations," Review, Federal Reserve Bank of St. Louis, issue May, pages 155-178.
    7. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
    8. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
    9. Hertweck Matthias Sebastian, 2013. "Strategic wage bargaining, labor market volatility, and persistence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-27, October.
    10. Elsby, Michael & Hobijn, Bart & Sahin, Aysegül, 2013. "On the Importance of the Participation Margin for Market Fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.
    11. Carlo Di Giorgio & Massimo Giannini, 2012. "A comparison of the Beveridge curve dynamics in Italy and USA," Empirical Economics, Springer, vol. 43(3), pages 945-983, December.
    12. Reinout De Bock, 2007. "Investment-Specific Technology Shocks and Labor Market Frictions," Working Paper Research 108, National Bank of Belgium.
    13. Hyun, Junghwan & Uddin, Azad, 2016. "Heterogeneous lending behaviors and gross loan flows in developing economies," Economic Modelling, Elsevier, vol. 55(C), pages 359-372.
    14. Barnichon, Regis, 2007. "Productivity, aggregate demand and unemployment fluctuations," LSE Research Online Documents on Economics 19694, London School of Economics and Political Science, LSE Library.

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    Keywords

    Business cycles ; Labor market;

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