Supply shocks, demand shocks, and labor market fluctuations

Helge Braun, Reinout De Bock and Riccardo DiCecio

No 2007-015, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We use structural vector autoregressions to analyze the responses of worker flows, job flows, vacancies, and hours to shocks. We identify demand and supply shocks by restricting the short-run responses of output and the price level. On the demand side we disentangle a monetary and non-monetary shock by restricting the response of the interest rate. The responses of labor market variables are similar across shocks: expansionary shocks increase job creation, the hiring rate, vacancies, and hours. They decrease job destruction and the separation rate. Supply shocks have more persistent effects than demand shocks. Demand and supply shocks are equally important in driving business cycle fluctuations of labor market variables. Our findings for demand shocks are robust to alternative identification schemes involving the response of labor productivity at different horizons and an alternative specification of the VAR. However, supply shocks identified by restricting productivity generate a higher fraction of responses inconsistent with standard search and matching models.

Keywords: Labor market; Business cycles (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec, nep-lab and nep-mac
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Journal Article: Supply shocks, demand shocks, and labor market fluctuations (2009)
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DOI: 10.20955/wp.2007.015

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