Disaggregated impacts of macroeconomic shocks on the labor market in Brazil: an analysis using a FAVAR identified via heteroskedasticity

Thiago Drummond de Mendonça Giudici and Elcyon Caiado Rocha Lima

EconomiA, 2025, vol. 27, issue 2, 232-250

Abstract: PurposeThis study examines the impact of macroeconomic shocks on the formal labor market in Brazil, segmented by workers’ education levels.Design/methodology/approachWe estimate a factor-augmented vector autoregression (FAVAR) model identified via heteroskedasticity based on the two-step method of Bernanke et al. (2005), along with the identification approach proposed by Brunnermeier et al. (2021).FindingsVarious types of macroeconomic shocks, such as those related to monetary policy and expectations, are identified. Our empirical results support the theory of heterogeneous agents for the Brazilian formal labor market over the business cycle, showing that the impacts of these shocks on more educated workers were smaller than other groups. Additionally, the findings suggest that the primary adjustment mechanism of firms is through hiring rather than separations and reveal a pro-cyclical pattern in turnover.Originality/valueUnlike previous studies, this paper applies a FAVAR model identified via heteroskedasticity to analyze the effects of macroeconomic shocks on the formal labor market in Brazil, offering additional evidence on how these effects vary across workers with different education levels.

Keywords: Labor market; Heterogeneous agents; Macroeconomic shocks; SVAR; Identification via heteroskedasticity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:econpp:econ-06-2024-0094

DOI: 10.1108/ECON-06-2024-0094

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