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Jobless recoveries: The interaction between financial and search frictions

Dennis Wesselbaum

Journal of Macroeconomics, 2019, vol. 61, issue C, -

Abstract: This paper establishes a link between labor market frictions and financial market frictions. We argue that this link had large effects on labor market outcomes and helps to explain the jobless recovery. We build a stylized DSGE model that features this channel. We use Bayesian methods to estimate the model on U.S. data. We show that the model with this channel generates a strong internal propagation mechanism, replicates stylized labor market effects of the Great Recession, and, most importantly, creates a jobless recovery. Further, our results show that recessions generated by financial shocks have the largest effect on the efficiency of the labor market compared to demand-side and other supply-side recessions.

Keywords: DSGE; Jobless recovery; Labor market; Financial frictions (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 J63 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Jobless Recoveries: The Interaction between Financial and Search Frictions (2016) Downloads
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DOI: 10.1016/j.jmacro.2019.103126

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