Frictional Unemployment with Stochastic Bubbles

Guillaume Vuillemey () and Etienne Wasmer
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Guillaume Vuillemey: HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research

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Abstract: We show that the volatility puzzle in labor economics (Shimer, 2005) stems from the inability of technology shocks to generate sufficient volatility of firm value. We introduce non-fundamental shocks to firm value, akin to bubbles, into an otherwise standard search-and-matching model. When calibrated to stock market data, stochastic bubbles significantly improve the ability of the matching model to quantitatively explain the volatility of the US labor market. An extension with multiple sectors improves the persistence of simulated labor market variables.

Keywords: Unemployment volatility; Labour frictions; Bubbles (search for similar items in EconPapers)
Date: 2020-02
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Citations: View citations in EconPapers (4)

Published in European Economic Review, 2020, 122, ⟨10.1016/j.euroecorev.2019.103352⟩

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Related works:
Journal Article: Frictional unemployment with stochastic bubbles (2020)
Working Paper: Frictional Unemployment with Stochastic Bubbles (2020)
Working Paper: Frictional Unemployment with Stochastic Bubbles (2016)
Working Paper: Frictional Unemployment with Stochastic Bubbles (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03950264

DOI: 10.1016/j.euroecorev.2019.103352

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