Search Frictions and Evolving Labour Market Dynamics

Michael Ellington, Christopher Martin and Bingsong Wang

Journal of Economic Dynamics and Control, 2021, vol. 127, issue C

Abstract: This paper puts Search Frictions models under novel empirical scrutiny. To capture changing dynamics, we fit a Bayesian time-varying parameter VAR to US labour market data from 1965–2016. Using a DSGE model with Search Frictions, we identify several structural shocks, including a shock to worker bargaining power that we name a wage shock. We argue that the wage shock is a key driver of cyclical variation, explaining a higher proportion of the variation of these variables than productivity, demand or job separation shocks. We also document stark differences between empirical and theoretical impulse response functions that cast doubt on the core transmission mechanism of search and matching models.

Keywords: time-varying parameter model; real wages; search frictions (search for similar items in EconPapers)
JEL-codes: E23 E32 J23 J30 J64 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:127:y:2021:i:c:s0165188921000397

DOI: 10.1016/j.jedc.2021.104104

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