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Bargaining shocks and aggregate fluctuations

Thorsten Drautzburg, Jesus Fernandez-Villaverde () and Pablo Guerrón-Quintana

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

Abstract: We argue that social and political risk causes significant aggregate fluctuations by changing workers’ bargaining power. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks trigger output and unemployment movements. To quantify the aggregate importance of these distribution shocks, we extend an otherwise standard neoclassical growth economy. We model distribution shocks as exogenous changes in workers’ bargaining power in a labor market with search and matching. We calibrate our economy to the U.S. corporate non-financial business sector, and we back out the evolution of workers’ bargaining power. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 28% of aggregate fluctuations and have a welfare cost of 2.4% in consumption units.

Keywords: Distribution risk; Bargaining shocks; Aggregate fluctuations; Partial filter; Historical narrative (search for similar items in EconPapers)
JEL-codes: E32 E37 E44 J20 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Bargaining Shocks and Aggregate Fluctuations (2021) Downloads
Working Paper: Bargaining Shocks and Aggregate Fluctuations (2021) Downloads
Working Paper: Bargaining Shocks and Aggregate Fluctuations (2020) Downloads
Working Paper: Bargaining Shocks and Aggregate Fluctuations (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:127:y:2021:i:c:s0165188921000567

DOI: 10.1016/j.jedc.2021.104121

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