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Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature

Author

Listed:
  • Giovanni Gallipoli

    () (University of British Columbia, Canada and The Rimini Centre for Economic Analysis, Italy)

  • Gianluigi Pelloni

    () (University of Bologna, Italy and The Rimini Centre for Economic Analisys, Italy)

Abstract

This paper critically appraises the different approaches that have characterized the literature on the macroeconomic effects of job reallocations from Lilien's seminal work to recent developments rooted in structural general equilibrium models, nonlinear econometric techniques and the concepts of job creation and destruction. Despite a flourishing of empirical analysis no unifying theoretical framework has obtained consensus in the scientific debate. We face a corpus of research which is heterogeneous in variables' selection and experimental design. This widespread heterogeneity makes the evaluation of results a daunting task. Reliability of outcomes becomes almost impossible to assess when, even within models of the same generation, the lack of a rigorous theoretical background hinders well defined experimental design and makes comparisons difficult. The strong pace at which the empirical literature on the macroeconomic effects of job reallocations has been growing in recent years suggests that a general assessment of the state of the art is valuable and maybe indispensable. As a guiding principle for our excursion we track down the methodological development of the proposed solutions to the crucial problem of observational equivalence. We do not linger on specific econometric methods nor on strictly theoretical issues not relevant to our main purpose. We draw the conclusion that the asymmetric and non-directional nature of allocative shocks, which holds the key to the solution of the problem, is better captured by multivariate, non-linear, dynamic econometric models and numerical simulation techniques. Davis and Haltiwanger's perspective on job creation and destruction seems to us of paramount importance for future research because of its potential to encompass a wealth of micro-level data sets within a rigorous analytical framework.

Suggested Citation

  • Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper series 27_08, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:27_08
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    References listed on IDEAS

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    1. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1-38.
    2. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters,in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
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    7. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2010. "Business Volatility, Job Destruction, and Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 259-287, April.
    8. Gianluigi Pelloni & Wolfgang Polasek, "undated". "Intersectoral Labour Reallocation and Employment Volatility: A Bayesian Analysis using a VAR-GARCH-M model," Discussion Papers 99/4, Department of Economics, University of York.
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    Citations

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    Cited by:

    1. Chen, Jinzhu & Kannan, Prakash & Loungani, Prakash & Trehan, Bharat, 2012. "New evidence on cyclical and structural sources of unemployment," Proceedings, Federal Reserve Bank of San Francisco, issue March, pages 1-23.
    2. Reicher, Claire, 2014. "The aggregate effects of long run sectoral reallocation," Kiel Working Papers 1928, Kiel Institute for the World Economy (IfW).
    3. Theodore Panagiotidis & Gianluigi Pelloni, 2014. "Asymmetry and Lilien’s Sectoral Shifts Hypothesis: A Quantile Regression Approach," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 6(1), pages 68-86, June.
    4. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Working Paper 2012/07, Norges Bank.
    5. Theodore Panagiotidis & Gianluigi Pelloni, 2013. "Employment Reallocation and Unemployment Revisited: A Quantile Regression Approach," Working Paper series 01_13, Rimini Centre for Economic Analysis, revised Feb 2014.
    6. Yanggyu Byun & Hae-shin Hwang, 2015. "Sectoral shifts or aggregate shocks? A new test of sectoral shifts hypothesis," Empirical Economics, Springer, vol. 49(2), pages 481-502, September.
    7. Peter Rodenburg, 2011. "The remarkable transformation of the UV curve in economic theory," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 18(1), pages 125-153.

    More about this item

    Keywords

    Sectoral shifts; methodology; measurement; assessment;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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