Aggregate shocks and labor market fluctuations

Helge Braun, Reinout De Bock and Riccardo DiCecio

No 2006-004, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper evaluates the dynamic response of worker flows, job flows, and vacancies to aggregate shocks in a structural vector autoregression. We identify demand, monetary, and technology shocks by imposing sign restrictions on the responses of output, inflation, the interest rate, and the relative price of investment. No restrictions are placed on the responses of job and worker flows variables. We find that both investment-specific and neutral technology shocks generate responses to job and worker flows variables that are qualitatively similar to those induced by monetary and demand shocks. However, technology shocks have more persistent effects. The job finding rate largely drives the response of unemployment, though the separation rate explains up to one third. For job flows, the destruction margin is more important than the creation margin in driving employment growth. Measuring reallocation from job flows, we find that monetary and demand shocks do not have significant effects on cumulative job reallocation, whereas expansionary technology shocks have mildly negative effects. We also estimate shock-specific matching functions. Allowing for a break in 1984:Q1 shows considerable subsample differences in matching elasticities and relative shock-specific efficiency.

Keywords: Business cycles; Labor market (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (20)

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DOI: 10.20955/wp.2006.004

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