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Identification of Labour Market Shocks

Josué Diwambuena () and Francesco Ravazzolo ()
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Francesco Ravazzolo: Free University of Bozen-Bolzano, Italy; CAMP, BI Norwegian Business School, Norway; RCEA

No BEMPS86, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: We propose a structural VAR model using sign restriction identification to disentangle supply, demand, and shocks originating from the labour market, and to quantify their relevance for economic fluctuations. We estimate our model on Italy's data from 2000Q1 to 2018Q4 using Bayesian techniques. Our results are as follows. First, wage bargaining and labour supply shocks are among the largest drivers of output and labour market fluctuations both at short and long horizons. Second, matching efficiency and automation shocks are critical drivers of labour market fluctuations but they have limited relevance for business cycle fluctuations. Our results are robust across many alternative specifications including a large SVAR model using a factor-based sign restriction identification estimated with a computationally efficient algorithm recently proposed by Korobilis (2020). Given the burgeoning significance of labour market shocks, we suggest that policies aimed at improving the flexibility of Italy's labour market should be strengthened.

Keywords: Labour market shocks; SVAR; Sign restriction. (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 (search for similar items in EconPapers)
Pages: [48 pages]
Date: 2021-06
New Economics Papers: this item is included in nep-mac
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