Can Sectoral Shifts Generate Persistent Unemployment in Real Business Cycle Models?

O. Mikhail (), Curtis J. Eberwein and Jagdish Handa ()

Macroeconomics from EconWPA

Abstract: 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.

Keywords: Real Business Cycle (RBC); Sectoral Shocks; Unemployment Persistence; Vector Auto-Regressive (VAR); Blanchard-Quah (B-Q) Identification (search for similar items in EconPapers)
JEL-codes: E24 E32 J61 C61 C63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2003-11-11
Note: Type of Document - pdf
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0311004

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