Labor market and financial shocks: a time varying analysis

Francesco Corsello () and Valerio Nispi Landi

No 1179, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Motivated by the events of the Great Recession, we estimate a time-varying structural VAR model to analyze the effects of a financial shock on the labor market, focusing on the US. Our results indicate that a tightening of financial conditions is highly detrimental to the labor market. Moreover, we show that financial shocks have affected the unemployment rate asymmetrically in the last three decades, an implication that a standard VAR cannot capture: while negative financial shocks have been responsible for increases in unemployment, our model does not find significant contributions of financial shocks during periods of expansion. The source of this asymmetry is the time-varying standard deviation of the identified shock, which is higher in times of financial distress; on the other hand, we find the transmission mechanism is almost constant over time.

Keywords: VAR; labor market conditions; financial markets (search for similar items in EconPapers)
JEL-codes: C32 E24 E44 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-ets and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Labor Market and Financial Shocks: A Time‐Varying Analysis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1179_18

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