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Frictional Unemployment with Stochastic Bubbles

Author

Listed:
  • Guillaume Vuillemey

    (HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research)

  • Etienne Wasmer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, New York University [Abu Dhabi] - NYU - NYU System)

Abstract

We show that the volatility puzzle in labor economics (Shimer, 2005) stems from the inability of technology shocks to generate sufficient volatility of firm value. We introduce non-fundamental shocks to firm value, akin to bubbles, into an otherwise standard search-and-matching model. When calibrated to stock market data, stochastic bubbles significantly improve the ability of the matching model to quantitatively explain the volatility of the US labor market. An extension with multiple sectors improves the persistence of simulated labor market variables.

Suggested Citation

  • Guillaume Vuillemey & Etienne Wasmer, 2020. "Frictional Unemployment with Stochastic Bubbles," Sciences Po Economics Publications (main) hal-03950264, HAL.
    • Handle: RePEc:hal:spmain:hal-03950264
    DOI: 10.1016/j.euroecorev.2019.103352
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    Cited by:

    1. Ken‐ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2022. "Asset bubbles, unemployment, and financial market frictions," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1806-1832, October.
    2. Christian Haefke & Michael Reiter, 2020. "Long Live the Vacancy," Working Papers 20200054, New York University Abu Dhabi, Department of Social Science, revised Sep 2020.
    3. Francisco Queirós, 2024. "The real side of stock market exuberance: bubbles, output and productivity at the industry level," Economica, London School of Economics and Political Science, vol. 91(361), pages 268-291, January.

    More about this item

    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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