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Shocks and Institutions in a Job Market Model

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  • Wouter Den Haan, Christian Haefke, Garey Ramey

Abstract

In this paper we study the effects of shocks (a slowdown in TFP growth and an increase in the real interest rate) in a model with endogenous job destruction and job creation. We show that both increase the job destruction margin and the job rejection margin and, thus, the unemployment rate. Moreover, the effects are bigger for those countries with generous unemployment benefits. This framework, thus, provides an explanation for the observation that European unemployment rates increased during the last 2/3 decades and the US unemployment rate did not. We also analyze the role of turbulence.

Suggested Citation

  • Wouter Den Haan, Christian Haefke, Garey Ramey, 2001. "Shocks and Institutions in a Job Market Model," Computing in Economics and Finance 2001 215, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:215
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    More about this item

    Keywords

    unemployment; job destruction; Europe;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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