Imperfect information, lagged labour adjustment, and the Great Moderation

Sweder van Wijnbergen and Tim Willems

Oxford Economic Papers, 2013, vol. 65, issue 2, 219-239

Abstract: This paper first documents the increase in the lag with which US labour input reacts to macroeconomic fluctuations since the 1980s. We show that lagged labour adjustment is optimal when there is uncertainty about the persistence of shocks and labour input is costly to adjust. We then present evidence that both the nature of shocks hitting the economy as well as labour adjustment costs have changed during the 1980s in a direction that could explain the increase in the lag. Finally, we argue that this development has the potential to explain the reduction in output volatility since the 1980s. Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1093/oep/gps037 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Imperfect Information, Lagged Labor Adjustment and the Great Moderation (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:oxecpp:v:65:y:2013:i:2:p:219-239

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Oxford Economic Papers is currently edited by James Forder and Francis J. Teal

More articles in Oxford Economic Papers from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().