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Stochastic Volatility in the U.S. Labor Market

  • Dennis, Wesselbaum

In state-of-the-art macroeconomic and labor market models shocks are assumed to be homoscedastic. However, we show that this assumption is much too restrictive. We �find signifi�cant evidence for strong time-varying volatility in all considered labor market time series. First, we estimate the unconditional variance-covariance matrix and �find signi�cant evidence for time variability. Second, we estimate the conditional variance-covariance matrix and discuss the time-varying risk contained in labor market variables. The implications are relevant for modelling purposes, welfare analysis, and the understanding of sources of fl�uctuations.

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File URL: http://mpra.ub.uni-muenchen.de/43054/1/MPRA_paper_43054.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43054.

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Date of creation: 29 Nov 2012
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Handle: RePEc:pra:mprapa:43054
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  1. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  2. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really uncertain business cycles," LSE Research Online Documents on Economics 51526, London School of Economics and Political Science, LSE Library.
  3. 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.
  4. Annastiina Silvennoinen & Timo Teräsvirta, 2008. "Multivariate GARCH models," CREATES Research Papers 2008-06, School of Economics and Management, University of Aarhus.
  5. Susanto Basu & John Fernald & Miles Kimball, 2002. "Are Technology Improvements Contractionary?," Harvard Institute of Economic Research Working Papers 1986, Harvard - Institute of Economic Research.
  6. Fernández-Villaverde, Jesús & Rubio-Ramírez, Juan Francisco, 2010. "Macroeconomics and Volatility: Data, Models, and Estimation," CEPR Discussion Papers 8169, C.E.P.R. Discussion Papers.
  7. repec:cup:cbooks:9780521574464 is not listed on IDEAS
  8. Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH," NBER Working Papers 8554, National Bureau of Economic Research, Inc.
  9. James D. Hamilton, 2008. "Macroeconomics and ARCH," NBER Working Papers 14151, National Bureau of Economic Research, Inc.
  10. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
  11. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
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