Can Sectoral Shifts Generate Persistent Unemployment in Real Business Cycle Models?
This paper extends the standard Real Business Cycle model to incorporate sectoral shifts in unemployment. Using relative sectoral technology and sectoral tastes shocks, combined with labor adjustment costs across sectors, we assess the possibility of generating persistent aggregate unemployment. Calibrated to Canadian data, the models suggest that the introduction of sectoral labor mobility with adjustment costs improves the ability of the standard real business cycle model to match the observed persistence in unemployment. Empirically, we estimated a Vector Auto-Regressive model and successfully matched the models' overshooting of labor. The results suggest that government policies aimed to alleviate the unemployment burden should pay closer attention to sectoral phenomena, specifically to sectoral labor mobility.
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- David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
- Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
- Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
- Jonathan H. Wright, 2000. "Exact confidence intervals for impulse responses in a Gaussian vector autoregression," International Finance Discussion Papers 682, Board of Governors of the Federal Reserve System (U.S.).
- Runkle, David E, 1987. "Vector Autoregressions and Reality: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 454, October.
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